In its first full year as a publicly listed company, Goodman Fielder has recorded another solid earnings performance with most businesses performing above expectations.
Net profit for the year was $243.2 million, an increase of $45.7 million or 23% on the previous year. The company's businesses generally performed well with revenue increasing by 2% from the prior year to $2,426.7 million. Earnings before interest, tax, depreciation and amortisation also grew, up by 7.5% to $444.1 million.
The result includes restructuring and integration costs of $13.0 million (post tax) and foreign exchange gains of $34.1 million (post tax). This delivers a normalised NPAT of $222.1 million.
FY2007; FY2006; Variation
NPAT(incl. OEI): $243.2m;$197.5m;+23.1%
Dividend: 13.5c;5.5c (1/2 year)
The year was marked by particularly strong performances from the company's Fresh Baking and Commercial divisions, continuing the momentum established over the past two years. The company's Home Ingredients division performed well in Australia but overall was held back by a weaker first half performance in New Zealand.
A highlight of the year was the company's robust management of considerably increased commodity costs. Substantial increases in commodity prices increased the company's cost base significantly, however these increases were actively managed with margins being maintained following successful cost recovery in the marketplace.
Another highlight was the good progress made on the company's growth strategy with a number of value adding acquisitions and their successful integration into the existing business.
Businesses and brands acquired during the year included, in Australia, Country Life Bakery, Flinders Bread, Moores and Early Harvest Specialty Breads, and the Copperpot dips, yoghurt and pate business. In New Zealand, the company acquired Northern Bakeries, River Mill Bakeries and Canterbury Flour Mills during the year. Since year end Goodman Fielder has acquired the dairy business of the New Zealand company IDP Mainland Limited.
The company made significant progress during the year on its plan to increase manufacturing efficiency by consolidating its manufacturing assets across its portfolio. The company closed a number of older plants and is progressively restructuring its production platform to become the lowest cost manufacturer in the industry.
Our New Zealand dairy business made a slow start to the year following a disappointing performance in the previous financial year. As a result, the business was substantially restructured to create a more focused management structure under new leadership. These changes began to take effect in the second half and the business finished the year in a much improved position.
GF Fresh Baking
The GF Fresh Baking business experienced strong earnings improvement for the 2007 financial year, with the business returning EBITDA of $175.9 million, an increase of 22% on the prior year.
The company's Fresh Baking division had an excellent year and returned a fourth successive year of double digit EBITDA growth. Although commodity costs rose to record levels during the year and the company incurred cost increases in fuel, packaging, oils and labour costs, all increases were recovered through a combination of price increases and internal cost reductions.
In Australia, the manufacturing function was reorganised under new leadership and the company is moving to a production platform focused on high volume, low complexity plants supported by a number of specialised plants to cater for more complex lower volume products. During the year a number of new products were launched into the market and several existing products were extended into new regions. A major private label contract had its duration and scope extended.
Market shares in loaf bread in the supermarket chains remained solid during the financial year and the company enjoyed steady growth in the supermarket sector. The trend to healthier eating alternatives continued during the year with the company's share of these higher margin categories increasing over the period in a growing market segment. This trend sustains the strong category value growth trend.
In New Zealand the GF Fresh Baking business had a relatively poor start to the year but experienced a better second half, finishing the year strongly. As in Australia, commodity and other costs rose steeply with business results being negatively affected, but price increases and cost reduction strategies were successfully implemented. Two non-essential manufacturing plants were closed.
Going forward the focus will be on new product development, with a renewed emphasis on innovation and launches of several new products planned. The focus on business efficiency and cost reduction will continue.
GF Home Ingredients
The GF Home Ingredients business performed well in Australia during the year, but was held back by its New Zealand performance. The business returned EBITDA of $91.1 million, up 3% on the prior year.
In Australia the business has performed strongly during the year and increased its market share significantly as well as outperforming the market.
The company continues to leverage off the strength of its existing brands by extending their reach into new products. The business also concentrated on forging and maintaining strong retail partnerships.
In New Zealand, the business did not perform up to expectations in the first half of the year. However a reorganisation early in the second half resulted in an improved performance with the business ending the year strongly.
The Copperpot business was acquired during the year and has now been fully integrated. This acquisition will provide the business with a competence in shorter shelf life and chilled products which can be leveraged into other areas.
Going forward there will be a continuing emphasis on the ambient and frozen product segments to maintain market share growth in these categories. Incrementally to this, the company will pursue expansion in the supermarket chiller with spreadable butter, dips and expanded yoghurt offerings to complement the existing spreads business.
The GF Commercial business continued to perform solidly during the year. EBITDA was $82.4 million, up 11% on the prior year.
FY2007; FY2006; Variation
This result follows a similar solid performance in the prior year, maintaining the momentum established over the past three years despite increases in commodity costs.
Commodity prices over the period were at historically high levels with some reaching all time highs. Despite these cost pressures, the business was able to recover the increases in the market place through quarterly price reviews and through operational improvements, particularly in the supply chain.
In Australia and New Zealand the focus continues to be on developing and marketing healthy oils and a number of lower saturated fat and virtually trans-free products were developed during the year.
Exports into Asia increased strongly continuing the recent trend. However returns from the region were impacted by the strengthening Australian dollar.
The Pacific business returned a solid EBITDA of $33.3 million for the year, an increase of 5% on the prior year.
This result follows a similar performance in the prior year. The major developments during the year were the acquisition of La Biscuitiere, a leading baking business in New Caledonia, and the divestment of a non-core stockfeed business.
The Fiji business returned a solid result despite the impact of the military coup during the year, while in Papua New Guinea the company's flour milling operations performed strongly.
GF Fresh Dairy
The GF Fresh Dairy business in New Zealand delivered an EBITDA of $61.4 million for the year, a decrease of 25% on the prior year.
FY2007; FY2006; Variation
The business did not perform to expectations in the first half of the financial year but, following an operational reorganisation midway through the year, it closed the year in a much improved position. The restructure resulted in greater accountability with the New Zealand dairy assets being split out as a stand alone division under new leadership.
During the year the fresh milk business experienced difficult conditions with considerable downward pressure on retail pricing. This followed a substantial reduction in retail pricing of supermarket house brand milk and a significant increase in raw milk pricing. Despite these pressures brand share remained stable.
Since year end, the company announced that it had entered into an agreement to acquire the business of IDP Mainland Limited (IDP), which will increase Goodman Fielder's presence in the route trade where IDP sells its Cow & Gate brand milk. The company has also been awarded a major milk supply contract with one of New Zealand's largest supermarket chains.
In the chilled dairy category, the company performed strongly and recorded a significant increase in market share following a successful relaunch of its yoghurt range and the success of Activate, a functional food probiotic yoghurt. Going forward the company will be pursuing growth in all of its key categories with a new yoghurt production line to be installed to meet market demand and considerable effort in new product development resulting in the launch of several new products and new packaging formats. The company will also be entering new segments leveraging off the strength of its leading brands.
Directors announced a final dividend of 7.5 cents per share, bringing the full year dividend to 13.5 cents per share. The final dividend is payable on 31 October 2007. Books close on 28 September 2007.
Board appointments and elections
During the year the Board appointed two new independent non - executive Directors, Mr Gavin Walker and Mr Clive Hooke. Mr Walker has a background in investment banking at chief executive level and has extensive business experience in New Zealand. Mr Hooke is a former Chief Financial Officer of a publicly listed food company and has broad experience in the Australian corporate environment. Mr Walker and Mr Hooke will stand for election by shareholders at the company's Annual General Meeting.
The company is performing solidly in the first quarter of the new financial year and is well positioned to deliver further profit improvement for the 2007/08 year (compared with the normalised 2006/07 result).
The FY 2006 results presented in this statement have been prepared on a pro forma basis so as to include a full 12 month performance. The pro forma numbers have not been audited. They have also been re-segmented to align the divisional results with the FY 2007 organisation structure. Divisional results have been normalised to exclude the impact of significant and one-time items.