Patties remains confident but price focus of consumers of some concern

Posted by Daniel Palmer on 25th November 2009

The new Chairman of Patties Foods has admitted to shareholders that the company has underperformed since listing in 2006, but is confident that the new leadership team can drive their high profile Australian food brands to new heights.

“Clearly, (the) transition from a private company to a listed entity has not been without its difficulties,” Christopher Riordan said at the company’s Annual General Meeting in Melbourne yesterday. “In FY 2009, there was undeniably disruption at Board and senior management level leading to resignations of the chairman, managing director and chief financial officer. Such an environment is hardly conducive to the development and implementation of sound strategic and operational decisions.”

Mr Riordan explained that the appointments of Greg Bourke as managing director, Michael Knaap as chief financial officer and Grant Leyden as general manager, manufacturing would be a key to the future success of the business, with a united leadership team filtering down through the organisation.

“I believe that these key employees have blended into a united group and are leading the management team in driving the earnings of the business in a disciplined manner,” he said. “I am pleased to report that, following my appointment, I met with numerous employees at both the Mentone and Bairnsdale offices. I was impressed with the overall culture and the genuine belief by employees in the future of the company.”

The maker of the Four ‘N Twenty Pie recently announced an increase to profit guidance, with profit likely to be up 50 per cent in the first half of Fiscal 2010. And Mr Riordan believes that this is just a hint of things to come despite conceding that some of the gains were from factors outside their control.

“While the results have been assisted by one-off factors such as supply difficulties encountered by a competitor and the appreciating AUD, the performance to date in FY 2010 gives some indication of the underlying, earning capacity of the business,” he advised. “I must stress that, while the early signs are positive, history demonstrates that a sustained earnings recovery will only be achieved if there is a disciplined, ongoing commitment to the fundamentals.”

Managing Director Greg Bourke echoed similar sentiments, adamant that the headwinds of the past couple of years are behind them.

“At last year’s AGM in Bairnsdale I described my initial observations of Patties Foods as being an unpolished diamond. This business has great potential. This view has been confirmed,” he told shareholders. “As you know from our recent announcement providing guidance on the first six months trading, the business is now providing stronger results than last year, and we are increasingly confident that the poor results of the past are behind us.”

Mr Bourke said the Fiscal 2009 year was “disappointing”, but inroads made in the fourth quarter had helped spur their strong trading results in early Fiscal 2010. The market share lost in the first half last year has now been recovered, the company advised, with their share of the key frozen savouries sector rising back over 50 per cent after languishing in the low 40s last year.

The frozen fruit category has remained a difficult area, however, with intense competition still hurting their market share.

Outlook
“As reported last week, the first 4 months to October has shown a continuation of the improved trading from the fourth quarter of FY2009,” Mr Bourke noted. “We won’t be giving guidance for the full year as there are still uncertainties and factors out of our control that may impact on our trading including the strength of retail sales especially the impact of the “flight to value” where consumers are buying more on price than ever before, fluctuations in the Australian dollar, interest rate increases, movements in commodity prices and the economy generally.”

“However, the company’s budget for this year requires a significant lift in profit performance compared to last year. I am pleased to report we are on track for the first four months. This has been driven by planned improvements from efficiency gains in the bakery, reduced interest expense, and sales growth initiatives from new products and promotional activities.”

“In addition there have been two unexpected events out of our control which are favourable to the business,” Bourke continued. “Firstly, the sudden improvement in the Australian currency has reduced imported raw material costs. Secondly, a small competitor closed in June due to a factory fire. This has caused a shortage of supply of sausage rolls in the retail market.”