Gildan Activewear Inc. has announced that it has purchased an 18 million square foot tract of land in the Dominican Republic and that it plans to construct a state-of-the-art knitting, bleaching and cutting facility on this site. The
land purchased by Gildan in the Dominican Republic is large enough to accommodate an anticipated further major capacity addition on the same site.
The Company also said that the fabric manufactured in the Dominican Republic
would be sewn both in the Dominican Republic and in Haiti, where Gildan
already operates an integrated sewing plant and has established relationships
with external contractors.
Using the experience and template of the Rio Nance facility recently
constructed in Honduras, Gildan plans to complete construction of the first
Dominican Republic facility in the next twelve months and ramp up to full
capacity in 24-30 months. The scale of the new textile facility in the
Dominican Republic will be comparable to that of the Rio Nance facility, and
the overall Dominican Republic/Haiti integrated manufacturing hub will be
based on the successful model of Gildan's integrated textile and sewing
operations in Honduras. The total capital cost of the Dominican Republic
facility is estimated to be in the order of U.S. $60 million, to be spent
primarily in fiscal 2004 and 2005.
In addition, Gildan plans during fiscal 2004 to further expand its
Honduras manufacturing hub. The Company will increase the production capacity
of the Rio Nance facility, as well as start a new sewing plant in Nicaragua to
be managed as part of the Honduras regional hub, for a combined capital
investment of approximately US $15 million. The further incremental expansion
of Rio Nance will reinforce the positioning of this facility as what Gildan
believes to be the largest-scale, most highly efficient, low-cost textile
manufacturing facility in the world.
The new capacity in the Dominican Republic/Haiti and Honduras/Nicaragua
is expected to be utilized primarily to support Gildan's projected continuing
sales growth in its existing products and its existing market channels, as
well as to rationalize and streamline its overall production capacity and
manufacturing cost structure, with its offshore facilities focussing on high-
volume, longer-run product-lines and its Canadian textile facilities focussing
on lower-volume, more specialized product lines.
The Company anticipates that its projected unit sales growth for its
existing products in its existing geographical markets and existing primary
market channels will result in unit volume growth over the next 5 years to
annual sales in excess of 35 millions dozens, an increase of more than 50%
over fiscal 2003. The Company's main focus during this period will be to
achieve its market share targets and optimize its overall cost structure in
the wholesale imprinted sportswear market. Other incremental growth
opportunities in this market include leveraging the Dominican Republic/Haiti
hub to drive penetration of new geographical markets and further development
of the Company's private label programs for imprinted sportswear brands, which
the Company has already begun on an opportunistic basis.
As Gildan continues to bring on further major new capacity additions
subsequent to the first Dominican Republic facility, it believes that the
extension of its wholesale brand into retail will represent the most
attractive long-term strategy to leverage its existing manufacturing strengths
and core competencies, ensure its continuing long-term growth and strategic
development, and ultimately create maximum value for its shareholders.
Gildan's positioning as the leading brand in the wholesale channel results in
a high consumer awareness of the Company's product-lines and product quality,
providing a strong foundation on which to build a recognized consumer brand
through the retail channel. Over the next 5 years, Gildan plans to manage its
initial entry into retail markets in a conservative and gradual manner with
the capacity that it has available, and build a solid base from which to drive
significant long-term penetration. The Company will refine its detailed
marketing plans for retail during fiscal 2004 and begin to penetrate the
retail market for activewear in fiscal 2005.
The Company believes that its plans to achieve further penetration in the
imprinted sportswear market, together with its anticipated cost reductions
from transitioning to a higher proportion of offshore manufacturing, will
allow it to achieve its objective of minimum 15% EPS growth for the next
5 years. The Company forecasts that it will generate approximately
US $100 million of further annual cost reductions, to be phased in over the
5-year period. The planned initial entry into retail is not expected to
materially impact financial results during this time-frame.
Gildan believes that the capital expenditure requirements to support the
Company's manufacturing plans and ongoing growth strategy will continue to be
entirely financed out of its internally generated cash flow. Consequently, the
Company's management and Board of Directors have considered whether to
introduce a dividend at this time, but have determined that the Company should
continue to conserve its surplus cash reserves and unused debt capacity at the
present time, in order to maximize its financing flexibility to pursue
potential future strategic growth opportunities. The Company also plans to
enhance profitability by repaying its U.S. Secured Notes totalling
U.S. $70 million as they mature over the next 4 years. These Notes are high-
cost in today's low-interest environment. The Company will continue to re-
evaluate the merits of introducing a dividend on an annual basis, as its
strategic plans develop.
