Goodman Fielder: 2010 Results Announcement

Sydney / AU. (gfl) Goodman Fielder Limited delivered a robust result in difficult conditions for the year ended 30 June 2010 with Net Profit after Tax of 161,1 million AUD, after non-recurring costs of 22,4 million AUD. If these costs are excluded, normalised NPAT was 183,5 million AUD – an increase of 11,2 percent.

Operating Cash Flow was up by 12,1 percent over the previous year to a record 319,7 million AUD. The ability to generate strong operating cash flows is an inherent feature of Goodman Fielder´s business model and supports reinvestment in the business and a high dividend payout ratio.

Ebitda (Earnings Before Interest, Tax, Depreciation and Amortisation) on a reported basis was 385,3 million AUD, up by 3,3 percent despite being impacted by non-recurring costs. On a normalised basis Ebitda increased by 10,3 percent to 399,6 million AUD. Ebitda momentum was maintained as run-rates continued to improve during the second half of the year.

The ongoing strength of the Australian Dollar adversely affected returns from both our Asia Pacific and New Zealand businesses which were impacted by weak currency when profits were translated into Australian Dollars. The impact on Ebitda amounted to 15,1 million AUD for the year.

Revenue was down by 6,6 percent to 2’660,1 million AUD, reflecting input cost volatility in the first half and adverse currency translation. The company continued its emphasis on working capital management and this has resulted in a cash realisation ratio of 141 percent, up from 120 percent in the prior year. Working capital has reduced by 21,7 percent from 159,7 million AUD at 30 June 2009 to 125,1 million AUD at 30 June 2010.

Business Environment

Overall the company experienced a highly competitive business environment throughout the year coupled with low pricing inflation. Consumers tended to pursue value offerings and this contributed to a very competitive market characterised by aggressive discounting. Despite these market trends the company returned further steady improvements in the «fresh» businesses of Baking and Dairy with Ebitda up substantially.

The Fresh Baking business returned a solid performance for the year with Ebitda increasing by 16,4 percent to 155,5 million AUD. This was achieved despite a highly competitive market characterised by aggressive discounting and a consumer focus on value offerings. As a result revenue growth was flat for the period but a continuing focus on extracting efficiency savings and a return to more stable input costs resulted in strong earnings growth.

The Fresh Dairy business had a strong year with Ebitda increasing by 36,7 percent over the previous year to 60,3 million AUD. This was achieved despite steady increases in raw milk costs during the year. The business continued to build on change initiated in the prior financial year and this has seen a revitalisation of the business with an increased focus on profit enhancing activities across the manufacturing, supply chain and sales functions. Sales volumes were up on the prior year as was revenue in local currency terms but, after translation into Australian currency, revenue reduced by 1,6 percent to 441,1 million AUD.

The Home Ingredients division returned an Ebitda of 99,3 million AUD for the year, down by 6,5 percent on the previous year´s Ebitda which included 9,4 million AUD profit on brand sales. This result was adversely impacted by a protracted transition to the new Erskine Park manufacturing plant. Revenue decreased by 6,2 percent, in part reflecting the exit from a number of unprofitable activities. Free cash flow was also down for the year, mostly reflecting the transfer of working capital from the Commercial division to better reflect the actual capital employed in both businesses. Consumers continued to embrace «in-home» cooking and eating – a trend which commenced in the previous financial year. While this encouraged sales of the division´s products, it was counterbalanced in some categories by consumer pursuit of cheaper versions, such as private label offerings or discounted branded products. This resulted in unit growth rates remaining generally constant over the year and the business maintaining stable market shares.

The Commercial division was impacted by input cost volatility in the first half as well as the distraction of the proposed divestment of the business but exited the year strongly. The business returned Ebitda of 34,3 million AUD for the year, a reduction of 33,5 percent over the prior year, while revenue was down by 20 percent to 430,5 million AUD. This reflects the higher costs of inventory in the first half of the year. The second half was much stronger, a result of improved product mix and solid business performances from our industrial customers. The Commercial business is being positioned to improve focus on customer engagement, overhead structure, conversion costs and the commercialisation of emerging blending technologies.

The Asia Pacific business continued to grow solidly in the Pacific and steadily increased its presence in Asia during the year. The business returned Ebitda growth of 9,1 percent at 57,8 million AUD. On a constant currency basis, earnings increased by a substantial 39 percent. The 12,4 percent reduction in revenue was a result of a reduction in input costs and adverse currency exchange rates. Operations in the Pacific returned strong organic growth while dairy exports into Asia grew solidly, as did the China based bakery ingredients business.

Finance

The company continues to maintain a conservative balance sheet with net debt reducing to 916 million AUD as at 30 June 2010, a reduction of 8,4 percent from a year earlier. The company´s gearing ratio (net debt to Ebitda) was 2,29 times and debt to (debt + equity) of 26,7 percent compared to – respectively – 2,79 times and 28,9 percent in the prior year. Interest cover also improved further to 4,45 times, compared to 4,11 times in the prior year. In October 2009 the company announced that it had finalised a new 500 million AUD syndicated, multicurrency, revolving loan facility. Then in June 2010 the company announced that it had successfully placed 300 million USD of unsecured notes in the US Private Placement market. The notes will be converted to 350 million AUD and used to repay expiring facilities. As a result of this completed refinancing, the next maturity is 350 million AUD in July 2011. The company maintains committed debt facilities of 1,4 billion AUD.