Pacific Brands shares were unwanted in yesterday’s strong market, despite a strong defence of the company and its decision to eliminate 1200 jobs from the chairman at the 2009 AGM in Melbourne.
Chairman, James MacKenzie strongly defended and praised CEO, Chief executive, Sue Morphet to the meeting.
He said in his speech the decision to outsource the company’s clothing manufacturing overseas and eliminate hundreds of jobs was a difficult one.
But investors were looking elsewhere and the shares drifted lower by around 5%, or 7.5 cents, to $1.39.
Part of the reason was the lack of any news on when the company will resume paying dividend.
The AGM heard that the company is facing a possible loss of more than $40 million as a result of the surging Australian dollar.
The dollar jumped past 93 US cents yesterday before falling by around a cent overnight.
Chief financial officer David Bortolussi told the meeting that the company was locked in to an exchange rate of 67 USc until December 31, and had taken out further hedging at more than 80 USc for the fourth quarter.
He said the hedge book is currently out of the money for the hedges in place at the moment by a figure in the mid-$40 millions. In other words, losses of that size at current exchange rates.
PacBrands, which imports the vast majority of its products from Asia, pays in US dollars and hedges between 75% and 85% of its currency exposure at the time customer orders are received.
Chief executive Sue Morphet said told the meeting that underlying earnings before interest, tax and amortisation were expected to fall in the current half year, "primarily as a result of the full impact of currency volatility in 2008-09 and the roll-forward of existing contracts put in place when the Australian dollar was at lower levels".
She said this would be offset in the second half, when underlying profit was forecast to rise on the previous comparable period as recent cost saving initiatives began to bear fruit.
Ms Morphet warned that ales revenue for the 2010 year would be down because of the changes earlier this year that has cut stock lines by around 10% to eliminate slow-moving products.
Those changes generated an enormous amount of anger, especially the job cuts.
"While the rationale of making so many people redundant was plain, it didn’t make the decision any easier or more palatable," Mr MacKenzie told shareholders.
"Many of these people have been with us for decades and have made an important contribution to the development of Pacific Brands."
Employees who have been made redundant are and will continue to receive retraining and re-skilling, Mr MacKenzie said.
Redundancy notices had been given up to 18 months ahead of time, well ahead of the legal requirements.
Much of nation-wide attention Ms Morphet attracted as a result of the decision to cut the workforce was unfair, he said.
"In doing her job and doing it extraordinarily well, involving extraordinarily difficult decisions – Sue took enormous personal attention – much of it unwarranted and unfair.
"Have no doubt while they were tough decisions, they were the right decisions."
He said that while there is still work to do, today Pacific Brands has "a lower cost base, a stronger balance sheet" and "we are moving towards a cleaner, more agile business with a better alignment and understanding of the businesses and their markets and we are improving the balance of skills required for the future success of the business.
"As I said, we still have more work to do – but we have made significant process."
Mr MacKenzie also said the company’s dividend policy would be reviewed at the current year’s half and full year after it suspended its interim and final dividends for the 2009 financial year.
"We will continue to work closely with our supply partners to ensure all our products and fabrics manufactured offshore maintain our high quality standards."
