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Pacific Brands earnings in line with guidance & transformation on track

Aug '09
Pacific Brands announced that the company had achieved solid operating earnings and cash flow in challenging market conditions during the 2009 financial year.

Pacific Brands Chief Executive Officer Sue Morphet said:“Earnings are in line with guidance and, importantly, the company is starting this financial year with a stronger balance sheet following its equity raising and debt refinancing completed in 2H09. “Reported earnings in F09 were impacted by a number of significant items not related to ongoing operations. The group booked non-cash asset impairment and write-down charges and incurred restructuring expenses associated with the implementation of the Pacific Brands 2010 strategy.

“In the past six months we have made good progress implementing our Pacific Brands 2010 strategy to transform and strengthen our business model. Our cost base is being restructured through overhead reductions and manufacturing closures, brands have been discontinued and stock-keeping units (SKUs) reduced. New skills and systems are being rolled out across the group. “In line with our strategy, this has allowed us to devote more resources to our key consumer brands such as Bonds, Berlei, Sheridan, Hard Yakka and King Gee. Despite seeing many markets that we participate in decline in the current economic climate, our key brands have experienced some growth, reinforcing our Pacific Brands 2010 strategy of focusing on our top performing brands.In addition, our B2B contract uniform business has had a successful year and has grown 6%, with new contracts and roll outs including the NSW Police Force and Compass Group in Europe. “Overall group sales contracted by $116.6 million as we divested businesses, discontinued brands and due to the general economic slowdown. Excluding divested businesses and discontinued brands, sales in the underlying business were down by approximately 1%.

“Earnings were impacted by volume declines and adverse mix changes as consumers traded down, and by an increase in raw materials and input costs, partially offset by price adjustments. Currency also had an impact on the company's profitability over the year with imported unit costs increasing sharply from the unprecedented currency volatility in F09. Our hedging program has delayed the impact by six to nine months, however, as anticipated, earnings were impacted in 4Q09.”

Segment results
Underwear and Hosiery sales were down 1.8% to $625.6 million and EBITA (before significant items) down 7.9% to $93.4 million. Hosiery, Bonds and Berlei grew but this was offset by declines in Clothing New Zealand and Holeproof. Outerwear and Sport sales were down 2.3% to $641.4 million and EBITA (before significant items) down 3.8% to $56.0 million. Streetwear (within outerwear) and sport segments were up, with workwear flat and unbranded down. Home Comfort sales were down 13.1% to $456.0 million and EBITA (before significant items) down 18.3% to$40.6 million. The tough housing and construction markets, consumer slowdown, and higher fixed cost structures in the manufacturing businesses all impacted profitability. Sheridan and Sleepmaker were adversely impacted by softer consumer demand and Tontine was the standout performer with sales up in all channels. Foams and Flooring grew market share in markets that were down.

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