Pacific Brands Limited saw branded sales increase 9.3% to AU$1.51 billion ($1.23 bn) for the full fiscal year, which includes sales from the acquisitions made during the year. Total net sales improved 6.8% to AU$1.62 billion ($1.22 bn).
The results for the year ended 30 June 2006 were consistent with those of the financial year ended
30 June 2005 including earnings before interest, tax, depreciation and amortisation (EBITDA) of
AU$192.3 million and earnings before interest and tax (EBIT) of AU$173.0 million ($129.4 mm). The slight decrease in
EBIT was predominantly a result of a difficult trading environment in the first half for Underwear &
Hosiery. While momentum in this operating group improved in the second half, it was not sufficient to
bring the Group result back into line with the performance achieved in the previous year.
Net profit after tax was AU$101.2 million ($75.7 mm), which represents a small improvement over the prior year. This
translates to an unchanged earnings per share of 20.1 cents (15.0 cents).
Commenting on the result, Chief Executive Officer, Mr Paul Moore said:
“Although this was a challenging year, Pacific Brands produced a steady net profit after tax and
improved operating cash flow. The 2006 financial year saw a period of fluctuating consumer
confidence with the impact of rising fuel prices and interest rate rises affecting the retail landscape.
“We have continued to focus on the fundamentals of the business and this has enabled the Group to
generate a solid performance for the year. Our strong consumer everyday essential brands remain
the cornerstone of our strategy and are the ongoing basis for our business model. We continue to
develop and enhance our relationship with our consumers.
“The core elements of our strategy are building and developing strong consumer brands, leveraging
the Pacific Brands scale across all our operations and making strategic acquisitions to further
enhance our portfolio of businesses.
“A highlight for the year was the acquisition of the Sheridan business. We took this opportunity to
gain a leadership position in the premium bed linen category and the business has now been
integrated into the Home Comfort operating group. Since the acquisition we have restructured
Sheridan, reviewed its product ranges, reinvigorated its marketing initiatives and improved its
sourcing. We expect it to be a strong contributor to earnings in the FY07 financial year. We also
completed the acquisitions of Arthur Ellis (Homewares New Zealand and Everwarm Survival
businesses), Peri and Foams Products Australia (FPA). FPA gives the Dunlop Foam business the
opportunity to improve its manufacturing in Queensland.
“Given the tougher business environment during the last financial year, we have continued to focus
on managing our costs and are well placed to contain potential future cost pressures by working
across the business to maximise and leverage our scale.”
Acquisitions
Acquisitions are a key component of the Pacific Brands strategy and the Group has a positive track
record of growth through acquisition. During the year it acquired Sheridan, Peri, Arthur Ellis
(Homewares New Zealand and Everwarm Survival) and Foam Products Australia. It will continue to
supplement organic growth with strategically relevant, well priced acquisitions. A net $87.5 million
was invested acquisitions during the year.
The company is well placed to make further acquisitions and continues to review relevant
opportunities.
Cash flow
Pacific Brands generated $80.0 million in net operating cashflow1 during the year. This was an
improvement of $4.9 million over the previous corresponding period, or 6.5%. Cash flow was
impacted by higher interest and tax payments.
Cash used to fund dividends was $75.5 million.
Tax
The effective tax rate on earnings was 26.3%, which was below the rate of 28.9% for the year ended
30 June 2005. The effective rate was 27.2% as at 31 December 2005 but was lower at the year end
as a result of clarification of some tax issues from prior years.
Outerwear & Sport
Branded sales in the company’s Outerwear & Sport division decreased 2.0% to AU$227.7 million ($170.3 mm) from AU$232.3 million ($175.0 mm) last year. Total net sales decreased 1.9% to AU$249.0 million ($186.2 mm) from AU$253.9 million ($191.3 mm) last year. EBIT increased 8.3% to AU$22.3 million ($16.7 mm) from AU$20.6 million ($15.5 mm)
Outerwear & Sport had positive earnings growth for the year led by KingGee, Everlast and Repco
bikes. The business has continued to focus on brand development opportunities in the core
categories of workwear, surfwear, schoolwear and sporting apparel. While the casual outerwear
market has remained competitive, the benefits of changes to its sourcing strategy and continued efforts to rationalise the supplier base have contributed to this operating groups performance
improvement.
The workwear category performed well with sales growth in the contract clothing business for
KingGee. It also had success with the launch of the innovative workcool range and successfully
transferred product sourcing from Fiji to China during the year.
The operating group repositioned its bicycle brands which have driven sales growth in this category.
Strong performances were achieved with the Repco Cycles and Malvern Star brands. The launch of
the Bike Hub store concept has provided the market with a new standard for service in bike retailing,
increased support for independent bike dealers and strengthened customer relationships in this
category.
Everlast continues to perform well across both the footwear and apparel ranges. Everlast is now a
well known and established youth sports brand in the Australian market and during the year it
expanded its sporting apparel range into New Zealand.
Footwear
Branded sales in the company’s footwear division increased 6.5% to AU$249.1 million ($186.3 mm) from AU$233.8 million ($176.2 mm) last year. Total net sales increased 1.6% to AU$277.0 million ($207.1 mm) from AU$272.7 million ($205.5 mm) last year. EBIT for the division increased 13.7% to AU$35.7 million ($26.7 mm) from AU$31.4 million ($23.7 mm) last year.
Footwear continues to deliver excellent results driven by the strength of the brand portfolio across
Clarks, Dunlop, Grosby, Hush Puppies, Merrell and Pierre Fontaine. A particularly strong performance
was achieved in Dunlop Footwear, which was supported by the “Legends In The Backyard” campaign
with Andrew Gaze, Liz Ellis and Pat Rafter. Merrell and Grosby also showed solid growth for the
year.
Category development and product innovation continue to drive success. This operating group is
improving speed to market and has built capacity both locally and offshore to meet the ongoing trend
to greater replenishment orders.
Footwear remains focussed on its key brands and is investing in consumer research to ensure the
continuing relevance of each brand in the portfolio. Footwear enjoyed further success with concept
stores over the year and online account servicing of specialist and smaller retailers grew through the
further development and rollout of Brandsnet.
Outlook
Pacific Brands remains committed to the strategy of building and strengthening its relationship with
consumers through its portfolio of everyday essential brands. We believe that the business
fundamentals remain strong and Group earnings are positioned to return to growth in FY07.
An improved performance in the Underwear & Hosiery operating group, the realisation of benefits
from the Sheridan acquisition and ongoing benefits from improved sourcing and cost management
are expected to contribute to growth in the next financial year.
The Group strengths remain its brands, products, scale, sourcing and relationships with customers
and consumers.
