Goodman Fielder has said profits will be at lower end of expectations

Goodman Fielder has said profits will be at lower end of expectations

Goodman Fielder has said it expects its full-year earnings before interest and tax to some in at the lower end of its previous forecast.

In an announcement this morning (23 July), the Australian manufacturer said its business has been hit by the "very challenging" conditions it faces in Australia and external markets.

"Increased competitive pressure, including price reductions for supermarket private label bread and the resulting pricing pressure on proprietary branded bread, together with higher labour and logistics costs continue to impact earnings in the Australia/New Zealand Baking division," the company said.

The company now expects annual earnings to be at the lower end of its A$230m (US$237.1m) to A$245m guidance range.

Goodman also revealed its results will be hit by A$110m in relation to the re-valuation of some the assets carried by its bakery business.

In total, the company expects to incur A$260-275m in one-off costs, including A$70-75m in redundancy costs associated with 600 jobs being cut in a major restructure.

Goodman has felt the impact of a price war between Australia's largest retailers, as Woolworths Ltd and Coles use private-label bread as a loss-leader to drive traffic.

The company has reacted to the difficult trading conditions it faces by a restructuring initiatives it hopes will cut A$100m from operating costs by fiscal 2014.

Goodman added the planned sale of its Integro commercial oils division and its NZ milling business was progressing well. The group confirmed it is engaged in talks with several unnamed parties.

Show the press release

Reaffirms FY12 earnings guidance - normalised EBIT (pre significant items) expected to be at lower end of A$230-A$245 million range

Project Renaissance remains on track

Business divestments progressing to plan

Prudent review of asset carrying values - expects to book non cash, impairment charge of approximately A$110 million relating to Australian/NZ Baking and Home Ingredients NZ businesses and A$80-90 million relating to businesses under review

Goodman Fielder today provided an update on restructuring initiatives and trading conditions and expected non cash impairments in its Australian/New Zealand Baking and Home Ingredients NZ businesses and businesses previously identified as being under review.

The company also provided an update on the divestment of its non-core businesses and reaffirmed earnings guidance for the financial year ended 30 June 2012 ("FY12").

Reaffirms normalised EBIT guidance for FY12 At its interim results on 16 February 2012, Goodman Fielder announced that it expected normalised EBIT (pre significant items) for FY12 to be in the range of A$230 million to A$245 million, subject to trading conditions.

While trading conditions and external markets remain very challenging, Goodman Fielder today confirms that it expects normalised EBIT (pre significant items) to be within this range at the lower end.

Project Renaissance Goodman Fielder continues to implement Project Renaissance to reduce the company's overall cost base and optimise its manufacturing and supply chain. This project is targeting A$100 million in annualised savings by FY14/15.

The first phase of this project, targeting A$40 million in ongoing overhead savings by FY12/FY13, is being successfully delivered through a new, more efficient operating model in Australia and the integration of the company's three retail-facing divisions in New Zealand.

Th e r eg ist er ed o f f ice o f Go o d m an Field er Lim it ed an d it s Au st r alian su b sid iar ies is T2, 39 Delh i Ro ad No r t h Ryd e NSW 2113

Goodman Fielder has also commenced the second phase of Project Renaissance to optimise manufacturing and supply chain efficiencies to deliver A$25 million in ongoing savings by FY13/14, which includes the consolidation of its bakery facilities to improve ongoing manufacturing efficiency and lower distribution costs.

The cost savings achieved through Project Renaissance are being used to restore earnings and are also being re-invested to strengthen the business through brand and product innovation and increased productivity.

Restructuring costs for FY12 are expected to be approximately A$70-75 million, the majority of which is related to Project Renaissance, including site closure and redundancy costs affecting approximately 600 positions. This amount also includes costs brought forward from FY13 associated with the recently announced bakery consolidation.

Business divestments As part of its portfolio prioritisation project, Goodman Fielder has advised previously that it is exploring the divestment of its Integro commercial oils division and its NZ Milling business.

This process is well progressed and discussions are ongoing with a number of parties in relation to both businesses. Goodman Fielder expects to provide further information in relation to the divestment of both businesses by the end of August 2012.

Goodman Fielder has also advised previously that as part of its strategic planning process, it is reviewing its business portfolio. That process identified a range of businesses as being under review and the company expects to incur non cash impairment charges relating to these businesses in the range of A$80-90 million in its FY12 accounts.

These impairment charges do not relate to the Integro business.

Australian and New Zealand Baking/Home Ingredients NZ Increased competitive pressure, including price reductions for supermarket private label bread and the resulting pricing pressure on proprietary branded bread, together with higher labour and logistics costs continue to impact earnings in the Australia/New Zealand Baking division.

In response, and as previously disclosed as part of the company's strategic plan, Goodman Fielder is implementing strategies to strengthen its Baking business. On 25 June, the company announced the first phase of consolidating its bakery facilities in Australia to improve its manufacturing efficiency, in addition to rationalising its product range and implementing measures to reduce distribution costs.

While Goodman Fielder believes its strategy to address these market challenges will increase earnings over the medium term, the company continues to adopt a prudent approach to its review of the carrying value of the Baking business as part of the process of preparing its financial accounts for FY12.

Given the continuing challenging conditions in the New Zealand retail market, Goodman Fielder has also adopted a prudent approach to the valuation of its Home Ingredients business in that market.

As a result, Goodman Fielder expects non-cash impairment charges against goodwill in its Australian and New Zealand Baking business and Home Ingredients NZ business of approximately A$110 million in its FY12 accounts.

Goodman Fielder advises that post the non-cash impairments, the company will continue to operate comfortably within its banking covenants.

Reported EBIT

Significant items for FY12 are expected to be approximately A$260-275 million, representing the non cash impairments in the Baking, Home Ingredients NZ and businesses under review of A$190-200 million, and restructuring/redundancy costs of A$70-75 million.

Reported EBIT for FY12 will include these significant items.

The company will release its financial results for the full year ended 30 June 2012 on 14 August 2012.

As previously advised, Goodman Fielder will also host an investor day to update the market on its strategic plan in early September 2012.

Original source: Goodman Fielder