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Solid first half result - Pacific Brands Limited
25
Feb '11
Pacific Brands announced EBITA before significant items was up 30.1% to $104.5m for the six months ended 31 December 2010 (1H11). The result was driven by improved gross margins from off-shore sourcing benefits and higher foreign exchange rates.

Underlying sales declined by 2.3% in line with prior guidance as retail conditions remained challenging. Cash flow continued to be strong, further reducing net debt and facilitating the refinancing of the company's debt facilities on improved terms over an extended period.

As planned, the company also announced the resumption of dividends with a fully franked 3.1 cents per share dividend representing a pay out of approximately 50% of net profit after tax before significant items. Significant items of $224.1m after tax comprised a $174.8m write-down of the value of the Footwear, Outerwear and Sport business (FOS), plus two previously indicated items, namely the write-down of the Sleepmaker and Foams businesses ($39.9m) and one-off transformation costs ($9.4m).

Pacific Brands' Chief Executive Officer Sue Morphet said: “The write-down in relation to the FOS business is obviously disappointing. However, our operating result before significant items was a creditable one in the current market environment and cash flow remains strong. We have now completed the cost reduction elements of our Pacific Brands 2010 transformation program which are almost fully realised, 12 months ahead of schedule.”

“The revenue benefits of a more focused portfolio and more capable business are also starting to have impact. Market conditions remain challenging, but we are well positioned to deal with them and to benefit from any subsequent improvement.”

“The resumption of dividends is a key milestone for the company.”

“We also recently announced the refinancing of our bank debt facilities, extending the maturity profile of our debt over five years, providing us with greater financial security and flexibility.”

Operating performance
Underlying sales in 1H11 were down $17m, or 2.3%, while reported sales declined by $89m, or 9.5%. More than half ($51m) of the decline in reported sales was attributable to prior period business divestments and exits – our footwear business in the UK and China, Icon Clothing and Merrell.

Ms Morphet said: “In the context of challenging market conditions, including a relatively soft Christmas trading period, the modest decline in underlying sales was a reasonable result and in line with previously indicated expectations.”

“Some of our key brands are showing the benefits of increased focus and investment, with sales of Berlei, Hard Yakka, Jockey, King Gee, Sheridan, Superdry and Tontine particularly pleasing.”

“Gross margins benefited significantly from the transformation benefits flowing from the transition to off-shore supply. “Operating cash flow remained strong at more than $100m for the half with cash conversionabove 90%. This allowed us to reduce net debt by more than $45m or 15% in the last six months despite the seasonal increase in working capital in the lead up to the Christmas period. Gearing is now down to 1.2 times and interest cover is up to 5.5 times.”

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Pacific Brands Limited

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