Second half earnings up, Pacific Brands
Pacific Brands announced EBITA of $181.4m in line with guidance for the 12 months ended 30 June 2010 (F10). Second-half earnings were up 13.7% despite lower hedged exchange rates and more challenging retail conditions than in the previous year.
Margins were maintained, due principally to the savings from the Pacific Brands 2010 transformation program which is running ahead of plan while underlying sales for F10 were down by 5.9%. Cash flow was exceptionally strong and net debt was reduced substantially. The company also announced dividends are expected to be resumed following the 1H11 result, subject to performance, financial position and outlook at the time.
Pacific Brands' Chief Executive Officer Sue Morphet said: “As indicated to the market at the half-year results, second half earnings were up but the full-year result was down on last year. We are pleased that margins – both gross margins and EBITA margins – held steady despite the continuing difficult market conditions and adverse impact of currency. This evidences the strength of our key brands and the benefits of our transformation program. It is a clear sign that our strategy is the right one.
“Our cash flow continued to be very strong which has enabled us to substantially reduce net debt, from $811m in December 2008 to $313m at June 2010, and also extend its maturity. This, together with our confidence in the future performance of the business, means that the board expects to resume dividends following the 1H11 result subject to performance, financial position and outlook at the time.”
Underlying sales were down $102m, or 5.9%, while reported sales declined by $217m, or 11.1%, for F10. More than half the decline in reported sales was attributable to business divestments and exits – our footwear business in the UK and China, Icon Clothing and Merrell ($39m) – and discontinuation of brands and labels as part of the portfolio rationalisation strategy ($76m).
Ms Morphet said: “Our overall result held up despite challenging market conditions and the extent of restructuring implemented internally. The sales result was disappointing, although we made pricing adjustments to mitigate the impact of lower hedged exchange rates and had to operate in a tougher than expected retail market, especially in the last six months. Sales to Department Stores (DS) were up and sales to Supermarkets were steady. Sales to Discount Department Stores (DDS) and other channels were down.
“Gross margins and EBITA1 margins were largely maintained, with gross margins benefiting in the final quarter from the increase in off-shore sourcing following the manufacturing closures of the previous 12 months. The transformation program also significantly reduced our cost of doing business in the second half.
“Operating cash flow2 remained strong at $290m for the year with cash conversion of 144%, driven by significant reductions in both inventories and debtors. This allowed us to reduce net debt by more than $100m (or 25%) in the last six months alone. Gearing is now down to 1.6 times and interest cover is up to 4.2 times. This balance sheet strength also enabled us to roll over and extend the maturity on our securitisation facility such that none of our debt is due until at least March 2012.”
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Pacific Brands Limited