Goodman Fielder has again confirmed why it is one of the great disappointments of Australian business.
For a company with so many key grocery brands, Goodman has failed to convert that quality into solid earnings growth.
The latest year is no different.
On August 19 it revealed a $300 million impairment charge to its Australian ($250 million) and New Zealand ($50 million) baking divisions.
Yesterday it revealed that excluding those charges, profit for the year was a weak $133.3 million.
Including the charges, the company reported an annual net loss of $166.7 million for the 2011 financial year, compared to net profit of $161.1 million in 2010.
Excluding the impairment charges, profit for the period was $133.3 million, down 17% from the $161 million earned in the 2010 financial year.
Second half underlying profit fell to around $40 million from the $69 million in the last half of the 2010 financial year as a series of factors hit the company.
When Goodman Fielder announced the impairment charges on August 19, the shares plunged almost 20% and the shares hit a low of 69c, the lowest they have been for more than 10 years.
Directors explained yesterday that: "Following a solid first half performance, the company suffered a significant profit decline in the second half.
"Relatively solid performances from the Asia Pacific and Integro businesses and a flat performance by the Home Ingredients division in very difficult conditions were outweighed by declines in the Baking and Dairy businesses.
"Economic conditions in Australia and New Zealand were challenging in the second half and this resulted in weakened consumer confidence which impacted retail buying trends as consumers pursued cheaper alternatives."
"The company’s Baking business suffered a significant loss of profitability during the second half of the year.
"This resulted from several factors including volume reduction, less favourable product mix, high commodity costs, and inadequate cost recovery.
"The Baking business incurred significant volume reduction following the loss of a private label contract in Australia and the business did not reduce manufacturing and logistics overheads quickly enough to compensate.
"The company’s cost base also increased as a result of higher commodity costs while fierce retail competition drove price discounting, making cost recovery more difficult to achieve.
"Compounding the impact was the resurgence of private label products, particularly in the bread segment, which created a less profitable product mix for the company.
"Other factors influencing the result included the effects of the continuing strength of the Australian dollar which impacted the translation of earnings from the company’s New Zealand and Asia Pacific businesses, and the impact of a series of natural disasters in Australia and New Zealand," directors said.
Goodman Fielder also said that new chief executive Chris Delaney had initiated a strategic review of operations aimed at improving the company’s performance.
That review has prevented the company from commenting on the outlook for 2011-12.
"Given current market conditions and that Mr Delaney is currently undertaking a review of the company’s strategy, it is not intended at this time to provide guidance on the company’s 2012 financial year performance," Goodman Fielder said yesterday in a statement.
"However, an update will be given at the company’s annual general meeting on 24 November, 2011."
Goodman Fielder’s revenue for the year to June 30, 2011 fell 3.9% to $2.66 billion.
Despite the weak result, the company will pay a final dividend of 2.5c per share, making a total for the year of 7.75c, down from the 10.75 c paid in the 2010 year.
So the outlook can’t be all that bad as in a company like Qantas, for example, which again omitted dividends in the 2011 year, despite earning a solid profit.
Goodman Fielder shares rose a cent to 77.5 c. At that level its worth just over $1.05 billion, a still substantial amount.
A year ago it was trading around $1.32, and peaked at a high of $1.68 last November. Since then it’s been a long slide.
Comment:
According to Mr Delaney’s comments yesterday, his review will take a couple of directions.
He said that in the second half some of Goodman Fielder’s brands were dropped by supermarkets, which made the situation worse.
"It goes without saying that our response was ineffective," Mr Delaney said during yesterday’s briefing for analysts.
"In particular, in the baking division, we did not adjust to the changing environment early enough, and the changes we put in place were not effective in reversing the tide."
Mr Delaney reportedly said Goodman Fielder needed to revamp its operations which were being hindered by a complex and widespread portfolio of brands and unnecessary duplication of tasks within the group’s five divisions.
"And, we have not had very clear articulation of the roles of those businesses and those categories in the past, which has led to a lack of co-ordination between the divisions," he said.
Furthermore, Goodman Fielder had not been sufficiently innovative, or had placed insufficient resources behind innovation.
The strategic review would be more about the
