Goodman Fielder returns to growth
Australian food manufacturing giant Goodman Fielder has released its full year results, showing a return to growth, with normalised net profit from continuing operations increasing by 5 per cent on the prior year to $75.7 million.
This compares to a reported net profit after tax of $146.9 million in the previous year.
“In a year where we faced the considerable challenges of rising input costs, intense retail competition and some specific operational issues primarily in our Asia Pacific business, the Company has delivered a solid result, which creates a platform for sustainable earnings growth into the future,” said Chris Delaney, Goodman Fielder Chief Executive Officer.
Goodman Fielder said it reinstated dividends to shareholders, announcing a final dividend of 3 cents per share for the financial year 2013 (FY13), payable on 1 November 2013.
Normalised EBIT from continuing operations in the second half of FY13 increased by 21 per cent over the first half from an improvement in the Company’s Baking and Grocery divisions and continued strong performance from the Dairy business in New Zealand. These gains were partially offset by lower earnings in the Fiji Poultry business in its Asia Pacific division.
“The strategic initiatives we are implementing across the business are starting to take hold and this is reflected in the stronger second half performance,” Mr Delaney said.
“We are gaining further traction in turning around the Baking division from the price increases we successfully implemented late last year related to our ‘cost to serve’ model and recovery of input costs, together with a continued reduction in the cost base through ongoing manufacturing and distribution efficiencies,” Mr Delaney said.
Goodman Fielder said earnings in the Grocery division had stabilised in the second half and it had an “improved pipeline of new products” being launched progressively throughout the 2014 financial year, following the increased investment it had made in core category branded innovation.
“Our strengthened balance sheet, with resulting lower net interest expense, has assisted the Company in restoring profit growth this year, and provides the platform for the group to generate positive earnings momentum for the medium term,” Mr Delaney said.
Mr Delaney said the Company had continued to progress its strategic objectives to strengthen the group’s financial position and refocus the Company on its core categories where it had the greatest capacity to succeed.
“We are continuing to generate strong cash flow across our businesses with operating cash flow increasing by 39 per cent on the prior year to $178.7 million,” Mr Delaney said. “We are also working more collaboratively with our retail partners on new product development and consumer insights, while continuing our capital investment program to ensure improved reliability and quality across our manufacturing facilities,” he said.
Goodman Fielder said that while the Baking category, particularly in Australia, “remains challenging” from the continued impact of private label, competitor and in-store baking competition on proprietary brands, the Company had made progress in the second half of the year on its strategy to turn around the Baking division to deliver more acceptable earnings performance.
Normalised EBIT in the Baking division declined by 9 per cent to $49.5 million compared to the previous year. Second half earnings doubled on the first half, however, which the Company said created positive earnings momentum into the current financial year.
Revenue for the Baking division FY13 declined by 3 per cent to $897.8 million, reflecting lower volumes, particularly in the Australian market in the first half of the year.
Goodman Fielder implemented price increases for its proprietary baking products in December 2012, recognising the costs involved in providing a daily fresh delivery service in Australia and also relating to the recovery of input cost inflation (excluding commodities) in Australia and New Zealand. The Company said the effect on volumes in Australia from price increases was slightly higher than anticipated and was also impacted by more frequent and deeper competitor promotional pricing in the third quarter.
Goodman Fielder said it had responded to protect its market share in the core fresh loaf category by continuing its restructuring program to create a more sustainable cost base through improved manufacturing and distribution efficiencies and overhead savings. As a result, total fixed overhead in the Baking division was 9 per cent lower than the prior year.
The consolidation of the Company’s operations in North Queensland was successfully completed in February 2013 with the closure of bakeries at Cairns and Rockhampton and an upgrade completed at the Townsville facility. The bakery at Whiteside (Melbourne) was closed in October 2012, while production of rolls at Tamworth was outsourced in November 2012. The Company said it is continuing its project to increase distribution efficiencies by individually reviewing its regional distribution routes.
During FY13, over 200 individual product items were deleted, a reduction of approximately 30 per cent on the previous year, which Goodman Fielder said resulted in a significant reduction in the complexity of the baking operation.
Goodman Fielder said retail trading conditions in Grocery remained difficult during the year, particularly in Australia, as a result of subdued consumer sentiment and increased competition from proprietary brands and private label, which put pressure on volumes and price.
Grocery revenue declined by 7 per cent to $502.8 million, impacted by lower volumes that required further investment in price and promotional strategy in an effort to mitigate the declines.
Despite lower revenue, the Company said gross margin as a percentage of sales improved on the previous year from a “continued focus on cost discipline across the business”.
Volumes reduced in Australia from supermarket range reduction in specific product categories in Australia and from increased mix pressure from private label and competitors in the core categories of spreads and dressings and mayonnaise. Volumes in Australia were also lower in dips and biscuits. Volumes in New Zealand were in line with the previous year, with improved performance in flour towards the end of the year helping to offset lower volumes in spreads.
Normalised EBIT declined by 12 per cent on the prior year, impacted by lower volumes, particularly in specific non-core categories within the portfolio and also by an additional tolling margin payable for commercial oils as a result of the divestment of the Integro business.
Earnings improved by 10 per cent in the second half compared to the first, however, as the Company said it stabilised its core categories and repositioned its master brands for growth.
Goodman Fielder said its Dairy division in New Zealand continued to perform well in the second half of the year, building on the improved earnings performance in the first half. Earnings increased from improved product mix, enhanced price architecture and ongoing cost management.
Revenue declined by 4 per cent to $395.3 million, reflecting declining commodity prices in milk and cheese and lower net average selling prices in meats.
Volumes were 1.5 per cent lower than the prior year, reflecting lower sales in milk and cheese during the year. However, Goodman Fielder said volumes in yoghurt increased, partially in response to the Meadow Fresh “Cool Stuff for Kids” marketing initiative.
Despite lower revenue, Goodman Fielder said normalised EBIT increased by 18 per cent to $37.7 million on gross margin improvement from a more profitable product mix and ongoing effective cost management.
The Company said its Asia Pacific division reported a disappointing result, primarily as a result of a one-off capacity issue in its poultry business in Fiji. Goodman Fielder said a higher than expected livestock mortality rate reduced the Company’s ability to supply poultry to the Fiji market. Resulting lower volumes, together with higher costs associated with remediating the issue, impacted performance in the second half of the year.
Revenue for the Asia Pacific division declined by 1 per cent to $331.8 million as a result of the lower volumes and unfavourable product mix in Fiji, and lower stockfeed volumes in Papua New Guinea. This was partially offset by improved flour volumes in Papua New Guinea and dairy.
Increased manufacturing costs, primarily related to alleviating the capacity constraints in Fiji, impacted earnings, with normalised EBIT declining by 9 per cent to $56.4 million.
“As a result of the continued reinvestment in our brands and categories, we expect that earnings in the 2014 financial year will be weighted towards the second half,” Mr Delaney said. “The achievements we have made over the past year have given the company a stronger platform to deliver on our strategic priorities and I remain confident that we will continue to make further progress this year,” he said.