Sydney / AU. (gfl) Goodman Fielder Limited announced its full year results to 30 June 2014. The market conditions for the company´s Baking and Grocery divisions in Australia and New Zealand remain challenging and highly competitive. Googman Fielder carefully monitors recent developments.
Financial Results Overview
- Revenue growth in Baking, Dairy and Asia Pacific offset by significant commodity cost pressure and difficult trading environment
- Improved pricing/mix and increased market share in power brands drives top line improvement in Baking offset by high AUD wheat price and manufacturing reliability issues
- Significant turnaround in performance from Fiji Poultry business drives revenue and earnings increase in Asia Pacific business
- Despite volume uplift, increase in farmgate milk price impacts Dairy earnings
- Improvement in Dressings + Mayonnaise offset by increased competitive environment in Spreads/Flour
- Normalised Result from Continuing Operations reflects challenging commodity costs and trading conditions
- Normalised Ebitda down eleven percent reflects, impact of commodity costs pressures (NZ Dairy, AUD wheat) and increased investment in marketing/branded innovation
- Normalised Ebit down 19 percent; Normalised NPAT down 17 percent; reflects lower Ebit partially offset by lower interest and tax expense
- Reported results from Continuing Operations reflect impact of loss on sale of non-core businesses, non-cash impairments and restructuring costs
- Loss on sale of 97,3 million AUD related to divestment of non-core businesses (Biscuits, Meats, Pizza)
- Non-cash impairments pre tax of 358,2 million AUD in line with previous market communication
- Restructuring costs related to simplified organisational structure
- Reported NPAT loss of 405,1 million AUD
- Improvement in Capital Management in second half versus first half
- Net debt twelve percent lower than 1st half to 481 million AUD at year end
- Operating cash flow up over 100 percent from first half
- Credit metrics continue in line with investment grade
- Final Dividend of 1c per share payable on one October 2014
- Fully franked for Australian shareholders
- 100 percent imputed for NZ shareholders
- Update on Scheme of Arrangement with Wilmar / First Pacific
- Regulatory approvals process underway
- Expect dispatch of Scheme Booklet to shareholders in October and shareholder meeting in late November
Chief Executive´s Perspective
Chief Executive Officer, Chris Delaney, said while the company had made progress in some areas of the business, sharply increased commodity costs and higher logistics costs had impacted the full year result.
«This is a disappointing result in the context of where the company had expected to be at this point in the strategic plan», he said.
«We had initially expected that in FY-2014 Goodman Fielder would return to profitable growth, building on the restructuring work we had completed in the initial phases of the strategy to re-focus the business, align the cost base and restore the balance sheet».
«While we experienced growth in some areas of the portfolio, the record increase in the farmgate milk price in New Zealand, together with the increase in the AUD wheat price resulted in significant input cost pressures which we were unable to fully recover through pricing».
«Additionally, the Australian Baking business was impacted by increased freight and transport costs to ensure we continued to deliver fresh product to our customers while we addressed reliability issues at some of our major manufacturing facilities».
«Our Grocery business continued to face a very challenging retail trading environment, which was compounded by our new product development in Spreads not being successfully ranged across all retailers».
«In response to this earnings decline, we have accelerated cost savings initiatives across the business by implementing a more simplified corporate structure from which we expect to generate an additional 25 million AUD in annualised cost savings by FY-2015».
«While we continue to address these short term challenges, we remain focused on our strategic objectives which are aligned to generating value over the medium term».
«That includes an increase in branded core category innovation which has resulted in an improved share in our power brands in Baking, particularly through the launch of new product development into new categories, such as gluten free and lower carbohydrate products in both Australia and New Zealand».
«It also includes the 25 million AUD investment we are making in our Christchurch UHT plant to leverage our existing export capacity of UHT milk to the rapidly growing premium UHT market in China».
«While FY-2014 was a significant step back from where we had expected to be, we remain committed to building a business which can deliver sustainable growth over the medium term», Delaney said.
Normalised Results
Revenue increased by three percent, driven by an improvement in net average selling price and mix towards more premium products, including Artisan in Baking, the ongoing recovery in the company?s Fiji Poultry business and higher pricing in Dairy. Normalised Ebitda was 223,8 million AUD, eleven percent lower than the prior year, impacted by the significant increase in commodity costs (AUD wheat and raw milk) and also from increased freight and transport costs in the Australian Baking division as a result of factory break-downs during the year. Normalised Ebit declined by 19 percent to 150,7 million AUD, reflecting increased costs, ongoing challenging conditions in Grocery, particularly for Spreads and edible oils, and also a seven million AUD higher depreciation charge related to the company?s increased capital investments over the past two years. Normalised net profit after tax was 63,1 million AUD, a decrease of 17 percent on the prior year (FY-2013: 75,7 million AUD). Net interest expense was 15 percent lower than the prior year while the underlying effective tax rate was 25,2 percent in FY-2014 compared to 29,4 percent in the prior year.
Reported Results
Total after tax significant items for FY-2014 were (468,2 million AUD) which impacted the reported result. As a result, Goodman Fielder reported a statutory loss from continuing operations of 405,1 million AUD compared to net profit from continuing operations of 83,5 million AUD for the prior year. The company?s reported results include the impact of significant items primarily related to the loss on sale of divested businesses, restructuring costs and non-cash impairments. The loss on sale relating to divested businesses was 97,3 million AUD, while restructuring costs associated with business divestments and cost savings initiatives were 38,2 million AUD. On 02 July, Goodman Fielder advised that it expected to record non cash impairments in the range of 300 to 400 million AUD, reflecting the ongoing challenging trading conditions and outlook in its core Baking and Grocery businesses. Having conducted a detailed analysis of the carrying value of its businesses, the company has recorded a non-cash impairment charge pre tax of 358,2 million AUD, comprising 337,4 million AUD in the Australian and New Zealand Baking division and 20,8 million AUD in the New Zealand Grocery division.
Capital Management
Net debt at 30 June 2014 was 481,2 million AUD, twelve percent lower than 31 December 2013 but eleven percent above the prior year (FY-2013: 434,5 million). Net debt was impacted by the revaluation of NZD denominated debt as a result of the lower AUD/NZD exchange rate. Goodman Fielder continues to operate comfortably within its banking covenants, post non-cash impairments, with a leverage ratio (Net debt / Ebitda) of 2,12 times and interest cover (Ebitda / Net Interest) of 4,17 times.
Dividend
The Board has resolved to pay a final dividend of one cent per share, payable on one October 2014. The record date for entitlement to receive the final dividend will be 15 September 2014. The final dividend is fully franked in Australia and 100 percent imputed for New Zealand based shareholders. This brings the full year dividend to two cents per share.
Divisional Performance – Baking
In the Baking division, Goodman Fielder achieved revenue growth from successful demand creation initiatives and improved pricing, however this was more than offset by the higher AUD wheat price and increased logistics costs. Revenue increased by three percent to 924,6 million AUD, reflecting higher net average selling prices and improved mix, despite a decrease in volume of five percent. Market share in fresh loaf increased with Helga?s up three share points (quarterly), while new product formulation and marketing campaigns assisted in Wonder White increasing its market share in value one share point (quarterly). Volumes were five percent lower than the prior year, reflecting the removal of a limited number of SKUs, lower volume in bakery snacks and the deletion of Mighty Soft loaf by one retailer. Mighty Soft was re-listed towards the end of the year. Normalised Ebit decreased by 29 percent to 35,0 million AUD compared to the prior year, impacted by the higher AUD wheat price and by increased freight and logistics costs. During the year, the company experienced a small number of breakdowns at its major bakeries which affected production. To maintain customer service metrics under its daily fresh delivery model, Goodman Fielder invested in significant additional transport and logistics costs. The company is implementing a reliability improvement plan across its major bakeries which includes continuous improvement programmes to improve production efficiency and run rates. DME increased by 41 percent on the prior year to support marketing campaigns and re-launches of Helga?s and Wonder White in Australia and Freya?s in New Zealand.
Information about the performance of the Grocery, Diary, Meats and Asia Pacific division is available in Goodman Fielders complete statement for the full year 2014.
Outlook
The outlook for retail trading conditions, particularly in Australia and New Zealand, remains difficult with continuing competitive pressure on product volumes and pricing. The company continues to carefully monitor the recent introduction of «dollar bread» in New Zealand to assess any potential impact on proprietary bread volumes and pricing.
In New Zealand, the reduction in the farmgate milk price from one July 2014 is expected to assist in earnings improvement in the Dairy business in FY-2015.
In this environment, Goodman Fielder will maintain its focus on strong operational cost control and expects to achieve further cost efficiencies from the simplified corporate structure implemented towards the end of FY-2013.
«Our immediate priorities are to arrest the earnings decline in Grocery, particularly in spreads and edible oils, implement our plans to improve manufacturing reliability across the Baking network and work through solutions to capture greater cost efficiencies in the daily fresh delivery model in Australian Baking», said Delaney.
«While we expect FY-2015 to be another difficult year, we continue to refine our strategy and re-align the cost base to deal with these challenges to build our competitive position», he said.
Update On Scheme Of Arrangement
On two July 2014, Goodman Fielder announced that it has entered into a Scheme Implementation Deed with Wilmar International Limited and First Pacific Company Limited under which Wilmar and First Pacific will acquire all of the remaining issued equity in Goodman Fielder that they do not already own by way of a scheme of arrangement.
Under the terms of the Scheme, Goodman Fielder shareholders will be entitled to receive 0,675 AUD cash per share subject to all necessary conditions being satisfied or waived and the Scheme becoming effective.
In the absence of a superior proposal and subject to an independent expert concluding that the Scheme is fair and reasonable and in the best interests of Goodman Fielder shareholders, the Board of Goodman Fielder unanimously recommends that Goodman Fielder shareholders vote in favour of the Scheme.
Wilmar and First Pacific are progressing the regulatory approvals process in accordance with the Scheme Implementation Deed and it is currently anticipated that a Scheme Booklet (including the Independent Expert´s Report) will be sent to shareholders in October 2014.
Goodman Fielder anticipates that a shareholder meeting to approve the Scheme will be held in late November with a Scheme Implementation date in December 2014. However, it should be noted that these are indicative dates and subject to change, depending on the progress of regulatory approvals.
