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Ann: HALFYR: PBG: Half Yearly Report and Accounts

  1. 					PBG
    17/02/2015 10:41
    HALFYR
    PRICE SENSITIVE
    REL: 1041 HRS Pacific Brands Limited
    
    HALFYR: PBG: Half Yearly Report and Accounts
    
    HALF YEAR REPORT FOR THE 6 MONTHS ENDED 31 DECEMBER 2014
    
    In accordance with Australian Securities Exchange Listing Rule 4.2A, attached
    is the Company's Appendix 4D - Half year Report for the period 1 July 2014 to
    31 December 2014, together with a copy of a Press Release which the Company
    intends to send to the media today.
    
    These documents will also be available on the Company's website at
    www.pacificbrands.com.au
    
    Half Year Results Announcement
    
    Strategic review objectives achieved ahead of plan
    - Workwear and Brand Collective divestments completed effective 1 December
    2014 with financial impacts above prior guidance1
    - Significant corporate cost initiatives to offset impact of 'stranded' costs
    which are now expected to be below guidance
    - Balance sheet strength and strong operating cash flow restored
    - Continuing business substantially simplified and with clear strategic
    priorities
    
    - Reported net loss after tax of $108.7 million due to non-cash impairment
    charges
    - Impairment charges of $138.5 million incurred due mainly to a change in
    approach and currency depreciation
    - Bonds, Berlei and Sheridan brand name carrying values not impacted
    - Continuing business sales up 6.0%
    - Bonds up 15% and Sheridan up 14%2
    - Growth driven by retail, wholesale still challenging
    - Continuing business EBIT before significant items of $31.5 million
    consistent with guidance
    - Underwear earnings down due to lower wholesale sales and margins, partly
    offset by strong retail performance
    - Sheridan earnings up due to strong retail performance
    - Tontine and Dunlop Flooring earnings up due to cost savings
    - Net debt reduced from $249.1 million at June to $24.2 million due to
    divestments, improved working capital management and strong cash conversion
    of 135%2
    - No interim dividend declared - balance sheet strength prioritised during
    year of transition and will be reviewed again at the full year
    - David Muscat confirmed as Chief Financial Officer
    
    Group results (reviewed)  for the six months ended 31 December 2014
    
     Reported   Continuing business before significant items
    $ millions 1H15 1H14 % Change 1H15 1H14 % Change
    Sales 391.8 369.7 6.0  391.8 369.7 6.0
    EBIT (107.0) 49.2 n.m. 31.5 41.6 (24.2)
    NPAT (108.7) (219.0) n.m.  16.9 23.3 (27.5)
    EPS (cps) (13.1) 3.8 n.m.  1.8 2.5 (28.0)
    DPS (cps) - 2.0 (100.0)  - 2.0 (100.0)
    Cash conversion2 135% 100% 35pts  135% 100% 35pts
    
    Commentary
    
    Chief Executive Officer, David Bortolussi, said: "The recent divestments of
    Workwear and Brand Collective have substantially simplified our business and,
    along with increased focus on inventory management and cash flow, we have
    restored balance sheet strength to the group.
    "Parts of our wholesale business continue to be challenging, particularly in
    discount department stores, but our retail business performed well,
    especially over the Christmas trading period.  We opened 13 Bonds stores in
    the half, and achieved high comp store growth  in Bonds (up 24%2) and
    Sheridan (up 10%2), despite a deliberate reduction in promotional activity.
    "Product and marketing innovation was a highlight, including the new Bonds
    Christmas Shine range which was successfully executed across all channels,
    and will be followed this year by an exciting new range and marketing program
    celebrating our iconic brand's 100 year anniversary.
    "Operationally, we have achieved supply chain improvements in SKU reduction,
    product costs, lead times and service levels.  Gross margins were in line
    with the second half of last year, and cost reduction initiatives have been
    expanded to further mitigate stranded cost pressure to levels below our prior
    guidance1.
    "We have been working hard in challenging market conditions, endeavouring to
    stabilise earnings and improve cash flow.  However, the significant drop in
    the Australian dollar over recent months places increasing pressure on the
    industry, which will need to respond operationally and also through price
    increases from the winter 2016 season when most hedge books unwind.
    "Looking ahead, our three operating groups have clear strategic priorities -
    invest in our key brands, stabilise our core wholesale business, expand
    retail and online, drive operational efficiencies to ensure we are lowest
    cost, and over time develop the international business for our key brands."
    Group results
    Sales were up 6.0% in a difficult trading environment, due mainly to growth
    in Bonds and Sheridan, underpinned by continued investment and success in
    retail in-store and online (now 28%2 and 6%2 of total group sales
    respectively). These factors more than offset lower wholesale sales driven
    by key account underperformance in the discount department store (DDS)
    sector.
    Gross margins declined by 3.6pts to 48.5% versus PCP, reflecting
    annualisation of the 2H14 significant decline in Underwear wholesale margins
    and the net adverse impact of FX, import costs, product mix and price
    increases.  However, margins were 0.3pts up versus the adjacent half (2H14),
    with wholesale margins and higher clearance levels offset by the positive
    channel impact of an increasing proportion of retail in-store and online
    sales.
    Cost of doing business (CODB) increased by $7.7 million to $158.6 million, an
    increase of 5.1%. Disciplined CODB investment in retail expansion had a
    positive net contribution to EBIT during the half, and store expenses reduced
    as a percentage of sales due to operational improvements.  Other CODB
    categories decreased due to cost control and restructuring initiatives net of
    inflation.
    Before significant items, EBIT was down 24.2% to $31.5 million, but 21.5%2 up
    on the adjacent half of $25.92 million.
    The reported net loss after tax for 1H15 was $108.7 million largely due to
    non-cash impairments of goodwill, brand names and plant and equipment ($138.5
    million), driven by a change in the definition of cash generating units,
    adverse changes in foreign currency rates and market dynamics.
    Interest was down, from $9.4 million to $8.4 million, reflecting lower
    interest rates and the impact of lower debt in December.  Excluding the
    impact of significant items, the effective tax rate was flat at 27%.
    Continuing business net working capital reduced by $12.9 million or 9.5% in
    1H15 due to clearance of aged and excess inventory as well as higher trade
    creditors driven by extended supplier terms, GST payable on divestment
    proceeds and timing impacts.
    As a result, cash conversion improved from 100%2 in 1H14 to 135%2 in 1H15,
    reflecting a significant turnaround on negative operating cash flow in 2H14.
    Along with the impact of divestment proceeds, this contributed to a decrease
    in net debt from $249.1 million at June to $24.2 million at December.
    Divestments
    Aggregate financial impacts of the Workwear and Brand Collective divestments
    were improved versus guidance1.  Gross proceeds of $226 million were above
    guidance of $219 million following completion adjustments, the profit on sale
    of $7.8 million (post tax) was above guidance of $5 million, and unrecovered
    corporate (or 'stranded') costs were down to c.$2.5 million, below prior
    guidance of $5-6 million.
    Segment results
    Underwear
    Total sales grew by 4.1% to $252.6 million for the half:
    ? Bonds sales were up 15.0%2 driven by retail with wholesale held flat.
    Non-Bonds brands were down 14.6%2 overall, impacted by underperformance in
    the DDS channel and private label penetration
    ? Total Underwear wholesale sales were down 5.8%2 due to continued key
    account underperformance in DDS, partially mitigated by supermarket expansion
    
    ? Total retail was up 50.7%2 with 13 openings in 1H15, annualisation of 28
    openings in F14 (including 5 acquired stores), and solid comp growth7 of 9%2
    in branded stores and 41%2 in outlets. Bonds in-store and online sales were
    25%2 and 7%2 of total Bonds sales, respectively
    EBIT (before significant items) was down 25.8% to $26.7 million versus PCP
    due to lower wholesale sales and annualisation of lower 2H14 wholesale gross
    margins and currency depreciation as previously reported, but 6%2 up on the
    adjacent half result of $25.22 million.
    Sheridan
    Total sales grew by 13.7% to $95.3 million for the half:
    ? Retail channels were up by 22.0%2, with wholesale down 3.0%2 driven by UK
    conditions
    ? Strong comp sales performance7 in Boutique (25%2) and Sheridan Factory
    Outlet (14%2)
    ? Momentum in new categories and Australian Open towel contract
    Due to the strong retail performance, EBIT (before significant items) of $8.7
    million was up 5.4% versus PCP representing a significant turnaround on the
    adjacent half (up $4.2 million on 2H14).
    
    Tontine and Dunlop Flooring
    Sales were up 1.2% overall to $43.8 million:
    ? Tontine sales were down 0.9%, with DDS underperformance and timing impacts
    mitigated by growth in supermarkets
    ? Dunlop Flooring sales were up 3.1% due to improvements in the domestic
    housing market
    EBIT before significant items was up 13.8%:
    ? Tontine earnings were up with CODB savings partially offset by margin
    pressure from customer mix, product mix and factory under recoveries
    ? Dunlop Flooring result was marginally up due to growth and improved margins
    
    Dividends
    No interim dividend has been declared, with balance sheet strength being
    prioritised in this year of transition.  Future dividends will next be
    considered at the full year having regard to performance, outlook and
    financial position at the time.
    F15 Trading update and outlook
    The Company expects a continuation of challenging and variable market
    conditions.
    2H15 sales for the half to date are up versus PCP, but 2H15 results will
    largely be dependent on May and June trading which are significant months.
    For the continuing business, 2H15 EBIT (before significant items) is expected
    to be up on PCP ($25.9 million2) but is unlikely to exceed 1H15 ($31.5
    million).
    As a result of the Company's hedging policy, the average AUD:USD rate through
    the P&L will be c.0.892 in 2H15.  Lower FX rates are expected to adversely
    impact margins, inventory balances and cash conversion from 4Q15 continuing
    into F16 and F17.  The Company will continue to take actions to mitigate
    through a combination of sourcing benefits, CODB reduction, mix improvement
    and further price increases.
    End CA:00260721 For:PBG    Type:HALFYR     Time:2015-02-17 10:41:27
    
    				

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