Pacific Brands earnings in line with guidance & transformation on track

26 Aug '09

5 min read

Footwear sales were down 7.0% to $251.9 million and EBITA (before significant items) down 23.0% to $28.0 million. Footwear sales were down mainly due to the poor performance of Grosby, unbranded and international operations, and profitability was impacted by currency movements. Management is in the process of restructuring the international footwear operations. Branded businesses such as Dunlop Volley, Hush Puppies, Clarks, and Julius Marlow performed strongly. Significant costs have been taken out in all businesses as the implementation of the Pacific Brands 2010 strategy was accelerated in response to the volatile and softer market conditions. Across the group operating expenses were down $61.7 million or 8.5%. In line with the broader market, sales to Supermarkets and Discount Department Stores were stronger than Department Stores and the independent/specialty channel. Innovation and new product development continued to drive each business. Examples include Bonds' revamped cottontails, Hard Yakka Women's workwear, Everlast hydrolast boxing shoes, Tontine's pure happiness pillow, Uggly Volleys from Dunlop and the new Berlei intimates range.

New capital structure
Pacific Brands equity raising and solid operating cash flow in 2H09 has seen net debt reduce by $289.9 million to $452.8 million. Tranche 1 of the debt has been fully repaid, while Tranche 2 has been reduced by $117.5 million. Gearing has improved from 2.9x at 30 June 2008 to 2.0x at 30 June 2009 compared with a covenant of 3.5x. Interest cover has declined from 3.5x at 30 June 2008 to 3.2x at 30 June 2009 compared with a covenant of 3.0x as at that date. Interest cover is lower due to the 12 month trailing impact of historic interest expense not adjusted for debt repayments during 2H09. The company now has no significant debt refinancing due until March 2012.

Pacific Brands 2010
The implementation of the Pacific Brands 2010 strategy and the business transformation, which were announced in February, are on track. The cost-out part of the program delivered in excess of the targeted $5 million savings in F09, is on track to achieve $50 million of savings in F10 and is tracking towards an annualised $150 million by the end of F11 with full impact in F12 (based on current market conditions and currency rates, and before any reinvestment). One-off cash restructuring costs to be brought to account in F09 were originally estimated to be $79.0 million ($56.2 million after tax) and have increased to $104.3 million ($75.1 million after tax). This is mainly due to costs associated with additional redundancies, the retraining program, plant decommissioning and site make-good. Further one-off cash restructuring costs of approximately $35.7 million ($25.0 million after tax) are expected to be incurred in F10 and F11 compared with original estimates of $15.0 million ($10.5 million after tax).

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Pacific Brands Limited

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