10:36am, 18 Feb 2013 | HALFYR
HALF YEAR REPORT FOR THE 6 MONTHS ENDED 31 DECEMBER 2012
In accordance with Australian Securities Exchange Listing Rule 4.2A, attached is the Companys Appendix 4D Half year Report for the period 1 July 2012 to 31 December 2012, together with a copy of a Press Release which the Company intends to send to the media today.
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Half Year Results Announcement
- Reported net profit after tax of $38.9 million (no significant items) for the 6 months ended 31 December 2012 (1H13) up from a reported loss of $362.4 million (impacted by significant items)
- Sales down 6.6% but net profit after tax up 8.9% and earnings per share up 10.0% (before significant items) with continued strong cash flow
- Dividend up 25% on the previous corresponding period to 2.5 cents per share fully franked (declared), representing an increase in the payout ratio to 59% (up from 51%)
- Underwear showed encouraging growth, driven by Bonds, Berlei and Jockey
- Workwear has been impacted by a cyclical downturn in market conditions
- Premium footwear up and Sheridan marginally down in difficult markets; a turnaround in other HFO brands and businesses is being undertaken
- Further detail provided on strategic priorities to stabilise sales and deliver sustainable growth over time
Group result (reviewed) for the 6 months ended 31 December 2012
$ millions Reported Before significant items
1H13 1H12 Change 1H13 1H12 Change
Sales 639.2 684.7 (6.6)% 639.2 684.7 (6.6)%
EBIT 64.3 (336.5) n.m. 64.3 65.6 (2.0)%
NPAT 38.9 (362.4) n.m. 38.9 35.7 8.9%
EPS (cps) 4.3 (39.3) n.m. 4.3 3.9 10.0%
DPS (cps) 2.5 2.0 25.0% 2.5 2.0 25.0%
Payout ratio 59% n.m. n.m. 59% 51% 8pts
Net debt 177.7 242.2 (26.6)% 177.7 242.2 (26.6)%
Chief Executive Officer, John Pollaers, said: Pacific Brands today announced a net profit after tax of $38.9 million for the six months ended 31 December 2012. This is up from a reported loss of $362.4 million after significant items and represents an 8.9% increase on the result before significant items recorded for the previous corresponding period. This result reflects gains achieved through strong operating and financial discipline across the business in continued challenging market conditions.
There is still plenty of work to be done to stabilise sales performance and return the business to sustainable growth. It is early days, but we are encouraged that the Underwear group returned to growth in the period, with Bonds, Berlei and Jockey all up. It shows that good results can be obtained from strategic focus, discipline and investment in great brands.
The Workwear group remains a global leader in an attractive industry. While it is clearly not immune to the current cyclical downturn characterised by low business confidence and slow employment growth, it has generally maintained market share and it has opportunity ahead of it when we see a return of business confidence in its markets.
In HFO, premium footwear was up and Sheridan was marginally down in difficult markets. Outerwear improved but still has further to go. Flooring stabilised after a difficult second half last year. Tontine is dealing with increased private label competition, and the non-premium footwear business is still in the process of being turned around.
Reported sales were down 6.6% (or 5.8% in terms of underlying sales , ) primarily due to low consumer sentiment and business confidence and reduced sales from lower margin portfolio brands.
Sales through the direct-to-consumer channel were up, reflecting the increased investment and success in both online and retail for certain brands. The business-to-business channel was down as a result of reduced Workwear sales.
The Companys sales through wholesale channels were generally lower due to low consumer sentiment and retailers private label strategies continuing to impact portfolio brands.
Mr Pollaers said: Restoring the Company to sales growth is a top priority. The strategy, which includes focusing on key brands and diversifying channels to market, is the right one. We are finding the different channels to market complementary. For example, some newer products are being trialled in our own stores and then, once proven, leveraged through our wholesale customers to deliver great results.
Gross margins improved by 1.9 percentage points (46.8% to 48.7%) reflecting the mix benefits from a greater proportion of sales from relatively higher margin products, increased vertical margin from greater direct-to-consumer sales and lower import costs.
Cost of doing business reduced by $7.4 million to $247.2 million, representing continued tight cost control. This reduction was achieved despite the increase in costs associated with additional investment in the direct-to-consumer channel.
Mr Pollaers said: Its important that we get the balance right between the need for cost containment whilst also investing in the business where it makes sense. Thats why this latest cost outcome is a good one, because it has occurred at a time when we have increased our investment in the direct-to-consumer channels.
Net profit after tax before significant items also benefited from a significant reduction in net interest (down 20.0%) and a lower effective tax rate.
Cash flow remained strong through effective working capital management resulting in cash conversion7, of 103%. This enabled an $11.4 million reduction in net debt from $189.1m at 30 June 2012 to $177.7m at 31 December 2012. The Company has a conservative capital structure with gearing7, at 1.3 times and interest cover7,9 at 6.0 times.
Reported sales were up 1.4% to $220.4 million. Reported EBIT was $38.8 million, up from an EBIT loss of $360.7 million (or an increase of 9.9% before significant items).
There was a continued pipeline of new products, with Bonds Zip Wondersuit being a prime example of innovation driving sales. The direct-to-consumer channels complemented this, and helped trial and prove the merits of new products for wider (ie wholesale) distribution.
Key brands (Berlei, Bonds, Jockey, Explorer and hosiery brands) represented 85%7 of Underwear sales and grew by $15.17 million or 8.8%7.
Bonds benefited from increased distribution in branded retailers and supermarkets and its sales were up in wholesale and direct channels. Seasonal sales were strong in most categories and replenishment rates were also up. There was also continued growth in direct-to-consumer sales. Berlei is online following its launch in April 2012. Bonds online is now shipping to Canada, Hong Kong, New Zealand, Singapore, the UK and the US, and the first three Bonds retail stores have been opened. Jockeys wholesale sales in New Zealand drove its performance.
The trajectory of hosiery brands improved following the 2H12 decline, as distribution in the supermarket channel stabilised.
The majority of portfolio brands, most notably Rio, were down. These lower margin portfolio brands represented 15%7 of Underwear sales and declined by $12.07 million or 26.3%7, reflecting additional private label product in some categories.
EBIT margins were up due to mix effects, lower import costs and the full period benefits of the Bonds and Omni integration.
Reported sales were down 9.1% to $176.8 million. Reported EBIT was $18.8 million, an increase of 2.2% (or a decrease of 3.0% before significant items).
New products are performing well, key examples being Stubbies Workwear, the new denim ranges for Hard Yakka and KingGee, and KingGee WorkCool 2.
Major corporate sales were steady, with contract renewal rates remaining high and stable, and the business continues to win additional contracts, including international opportunities with the Emirates Group in UAE.
Overall business-to-business sales of industrial workwear and corporate uniforms continue to be impacted by weak business confidence, slow employment growth, the slowdown in the resource sector and reduced government spending (eg Defence). While indent sales were up, replenishment levels were down and retail sales declined, particularly in the small to medium enterprise segment. Sales were affected by tighter procurement practices, lower employee turnover and slow employment growth.
Wholesale sales were impacted by similar factors to those affecting direct business-to-business sales. Sales to wholesale customers servicing the small to medium enterprise segment were most affected. Demand from the resource sector, particularly in Western Australia and Queensland, continued the slowdown which commenced in 2H12.
EBIT margins were relatively steady, with reductions in import costs and tight cost management offsetting the impact of lower sales.
Homewares, Footwear & Outerwear (HFO)
Reported sales were down 11.3% to $242.0 million (or 9.5% in terms of underlying sales6,7). Reported EBIT was $12.0 million, down 18.9% (or 32.2% before significant items).
Sales in boutiques were up, but Sheridans sales were marginally down overall due to reduced concession sales and clearance volumes.
Key premium footwear brands Clarks, Hush Puppies and Julius Marlow were all up, but Footwear & Sport was down overall due to declines in portfolio brands (Grosby, Dunlop, Slazenger). There was increased clearance activity and discounting in the footwear market throughout the period which impacted margins, and sales and earnings were also impacted by the Payless administration.
Outerwear improved performance in both the retail (eg Mossimo) and wholesale (eg Superdry) channels.
Tontine continues to be impacted by increased private label competition. Dunlop Flooring sales were down but have stabilised following the 2H12 decline, and margins were lower due to increased competitive intensity and continued softness in the housing market.
Gross margins were relatively steady overall, with the EBIT margin decline principally reflecting the impact of lower sales.
Dividends and capital management
Directors declared a dividend of 2.5 cents per share fully franked, representing an increase of 25% on the previous corresponding period and an increase in the payout ratio to 59% (up from 51%).
The on-market buy-back period expired on 6 September 2012. The Board is currently prioritising balance sheet strength and dividends in the current challenging market environment. The Board will continue to proactively consider various alternatives for capital management as appropriate over time, subject to various considerations including capital structure, share price and alternative investment opportunities.
Pacific Brands today further expanded on its strategy for achieving sustainable growth following completion of the transformation program, including the following key future characteristics:
- Clear purpose: We are Australian for innovation and design that is loved by the world with more external focus on growth
- Focused portfolio delivering consistent growth
- Strong indirect wholesale customer base balanced with complementary direct channels to market (ie online, retail and business-to-business)
- Delivery of high impact innovation in the core categories and capturing adjacent category expansion opportunities
- Growing international business, particularly for Bonds, Sheridan and Workwear
The corporate strategic imperatives to achieve this position are centred around the strategic themes outlined in October 2012 at the Annual General Meeting, namely to:
- Maximise the full potential of each business
- Drive direct shopping experiences (online and retail) that excite our -consumers
- Explore the potential for geographic expansion
- Maintain an internationally competitive sourcing & supply chain
- Build a breakthrough performance culture
These imperatives are being translated into strategic priorities for each operating group, as summarised below.
- Invest in core brands for sustainable wholesale growth
- Grow direct-to-consumer channels
- Capture adjacent category opportunities
- Develop international business
- Extend product and brand leadership
- Strengthen distribution platform
- Capture adjacent segment and category opportunities
- Develop international business
- Accelerate growth through acquisitions
For HFO, priorities differ by business, but key priorities include:
- Invest in and focus on key brands for sustainable wholesale growth (all businesses)
- Expand / optimise direct-to-consumer channels (Sheridan, Footwear, Outerwear)
- Capture adjacent category opportunities (Sheridan)
- Develop international business (Sheridan)
- Optimise / manage businesses to address competitive challenges (Tontine, Flooring)
- Turn around operational performance and returns (Footwear, Outerwear)
Mr Pollaers said: Some initiatives will take time to have a visible impact on reported results and further performance improvement is required. However, in my short time here I can already see traction in the initiatives we are taking.
Second half-to-date underlying sales performance continues to be mixed with Underwear up, Workwear down, HFO down and the overall group marginally down compared to the previous corresponding period.
Gross margins and costs of doing business are expected to be broadly in line with 1H13. Continued efforts to control costs of doing business are being undertaken, and the Company will also continue its planned investment in the direct-to-consumer channels.
Earnings outcomes will be largely dependent upon market conditions, associated sales performance and implementation of the new strategy over time, and may be impacted by ongoing restructuring and rationalisation.
The Company remains well placed to deal with the continued challenging trading environment and to benefit from any improvement in market conditions.
For further information contact:
Chris Richardson Sue Cato
Manager, Group Treasury and Investor Relations Cato Counsel
Pacific Brands Limited
+61 3 9947 4926
+61 410 728 427 +61 419 282 319 [email protected]
Appendix A: Underlying sales1
$ millions 1H13 1H12 $m %
Underlying sales 636.0 675.5 (39.5) (5.8)
Net business divestments2 3.2 9.2 (6.0) (65.0)
Reported sales 639.2 684.7 (45.5) (6.6)
1 Data not subject to independent review. Defined as reported sales less sales from brand acquisitions, divested businesses and businesses held for sale
2 Bikes business divested in 1H12 (effective 31 August 201