Goodman Fielder chief executive officer Chris Delaney.One-off costs that continue to evaporate savings are ‘‘not good enough’’ Goodman Fielder chief executive Chris Delaney said, with profit expected to improve significantly from the $64.8 million loss in the first half.
Record milk prices and rising Australian dollar-based wheat prices also heavily impacted the bottom-line in the first half of the 2014 financial year.
The company said further increases in the farmgate milk price in 2014, combined with aggressive competitor pricing, will impact second-half earnings by around $5 million.
In the six months to the end of 2013, farmgate milk prices increased more than 40 per cent, weighing on Goodman Fielder’s dairy arm, as pre-tax earnings fell 39 per cent from the previous corresponding period.
Goodman Fielder increased dairy sales volumes in the first half and Mr Delaney said he was confident that global dairy pricing would be more favourable in the next fiscal year, which would improve margins.
A continuing disparity between US wheat prices and Australian wheat prices in the first half also weighed on earnings. Mr Delaney said the company will be implementing a small price increase in bakeries to mitigate the cost of Australian wheat.
From profit to loss
The loss entails $94.9 million in significant items after tax, including $15.5 million in restructuring costs and $97.3 million in asset impairments related its biscuits, meats and pizza businesses which have been sold. It will receive $35 million in proceeds from the sale of those assets in the second half.
The loss in the first half of the current financial year is down 287.9 per cent from the period corresponding period, where Goodman Fielder reported a $34.5 million profit.
Goodman Fielder said full-year pre-tax earnings are expected to be broadly in line with the last financial year, around $185.6 million.
Shares in the food processor were down 7.4 per cent to 63 cents in early afternoon trade.
Mr Delaney said it was extremely frustrating to see one-off costs undoing all the hard work that Goodman Fielder has been doing in cost savings. Cost savings within the group remain on target to achieve $100 million by the 2015 financial year, and the company has identified a further $25 million in savings to be achieved by the end of fiscal 2016.
‘‘We understand we need to do more, sooner, better, and create our own luck and not just sit here are say they’re one-offs, that’s not good enough, we understand that,’’ Mr Delaney said.
‘‘I’m absolutely convinced what we’re doing is right for the long term. I’m incredibly disappointed to stand in front of you today with the outlook that I’ve just given. It is not what we wanted and we don’t think that’s what the shareholder deserves.’’
Savings to improve
Goodman Fielder is forecasting around $20 million in savings this year from improvements in distribution and manufacturing in its Australian baking arm, and supply chains savings in its New Zealand baking arm.
‘‘I think they’re going about improving the business the right way, it’s clearly happening at a pace that’s slower than we would have hoped for and certainly they would have indicated,’’ CLSA analyst David Thomas said.
‘‘The issue is you’ve got some relatively tired assets that they’re trying to regenerate, some brands that have been underinvested in and a distribution route to market that’s pretty challenging. Hiccups are coming through but unfortunately a bit bigger and a bit more frequently than we would have hoped.’’
Price increases helped lift pre-tax earnings in its bread business by 22 per cent from the previous year, despite lower volumes, however analysts had been expected better returns from the low base considering the new contracts signed with supermarket Coles to provide private label bread.
The grocery business struggled after failing to convince a major customer to stoke its new MeadowLea HeartPlus products. Volumes, revenue and pre-tax earnings all slipped by single digit percentage points.
Revenue in the first half of the 2014 financial year increased 5 per cent to $1.1 billion, boosted by the pricing in baking and dairy products, and currency benefits from the strong New Zealand dollar.
Goodman Fielder’s debt increased by $115 million to $549 million in the first half, impacted by timing on tax in Papua New Guinea, last year’s final dividend and a revaluation of $NZ debt relative to the Australian dollar.
Goodman will issue an interim dividend of 1¢ with the franked amount per security 30 per cent.
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