Pacific Brands sparked a major story yesterday with the news that it will cut 1850 jobs from its Australian manufacturing and administration operations after posting a first half loss due to difficult market conditions.
Despite the claims by the Federal Opposition, this cutback has been forced on the company by a combination of high debt and banks monstering the company.
The market, after considering the Pacific Brands announcement, reacted by selling off the company in the last hour of trading.
The share plunged to be down 37% at the close at 22 cents, after hitting an all time low of 21 cents.
For all intents and purposes the company is in the hands of its banks and the market reckons there’s no value.
At that level the company is all but dead, with no future, unless someone can buy it.
News of the job losses came without warning the relevant unions or the Federal and State Governments, a move that will unnecessarily provoke a round of ill feeling towards a company that has bought some of the problems on itself.
The company is departing manufacturing in this country and will be gone by the end of next year.
Manufacturing sites to close include the Bonds NSW factories in Unanderra (in Wollongong) with 207 job losses, Wentworthville in Sydney, which is set to lose 233 staff, and Cessnock, in the NSW Hunter Valley where 83 staff will be cut. At the King Gee plant in Bellambi, also in Wollongong, 74 staff will be made redundant, while a plant in West End in Brisbane, 56 will go.
The cuts were decided on by the company after a lengthy review by management consultants, McKinsey and Co, a sure sign of a board and management uncertain, or unable to take the tough decisions.
In fact for the company to depart Australia, when the Australian dollar is low (it should have really gone last year when the dollar was high) is a sign of the desperate straits it found itself in as sales slid, earnings dropped and retail conditions soured.
Not even multi-million dollar marketing campaigns starring Sarah Murdoch and Pat Rafter (the former tennis player) and Michael Clark, the cricketer, could slow the slide.
The company reported a net loss for the half year ended December 31 was $149.956 million, compared to a profit of $57.02 million in the previous corresponding period. (Source, Comsec). That result was made a loss by $206 million in write-downs.
The board did not declare an interim dividend in order to preserve capital, and said a decision on the final dividend for fiscal 2009 will be made according to business conditions at the time.
Ms Morphet said Pacific Brands will implement a new strategy, dubbed Pacific Brands 2010, to restructure the business, fold smaller brands to cut costs and complexity and shut down some clothing manufacturing in Australia.
"Unfortunately these changes will necessitate 1850 jobs losses in Australia over an 18-month period including 1200 in clothing manufacturing,” she said.
"The reduction in complexity will deliver the future strength, growth, profitability and sustainability of the business – for our shareholders and employees.”
The company says there was "no impairment of any recent acquisitions (Sheridan, Yakka, Brand Collective)>’
The company says the new strategy will deliver $150 million a year in cost savings by full year 2011 after an overhaul of sourcing, including closing the majority of its Australian clothing manufacturing operations.
As well, Pacific Brands will offload non-core businesses, sell properties, relocate some head office functions and consolidate office space.
One-off expenses of around $110 million would be incurred in the second half of 2009 with another $15 million in full year 2010 and 2011, the company said in a statement.
The company will use increased operating cashflow to pay down debt which stood at $905 million at December 31.
This may be complemented by asset sales, and would determine the most appropriate debt facilitates for the newly structured business.
Ms Morphet said the first half result as "solid" and in line with the company’s guidance.
She said the current economic climate remains challenging and uncertain, with consumer confidence at low levels.
"The potential for the continuation of deterioration in the market means we are not in a position to confidently predict the second half performance," she said.
Revenue for the first half fell 5.2% to $1.04 billion, with the company’s operating profit down 3.5%.
Impairment charges of more than $206 million plunged the company into losses.
The company manufactures household brand names including Bonds, Holeproof, Dunlop, Stussy, Mossimo and Hard Yakka.
The company said its Underwear & Hosiery business “had strong performances from Bonds, Berlei and Hosiery, offset by decline in Clothing NZ and Holeproof."
"Outerwear & Sport was up driven largely by the workwear group with strong performances across all business segments; home Comfort sales decline driven by divested business (NZ Foams, Flooring and Bedding) and more discretionary higher priced items such as beds and bed linen; footwear impacted by Grosby which had a very poor half with product quality issues and a lack of brand distinctiveness.
“It is improving with a good "back-to-school" season this January."
The company said that after a period of declining retail sales and very low levels of consumer sentiment, "Christmas trading was stro
