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In providing a Business Update to farmer shareholders today, CEO Rob Gordon said, “Dairy Farmers shareholders gave the Board a mandate for change. In readying the business for listing, I’ve conducted a health check, part of my prognosis determined a need to reset the business. As a result, we’ve started implementing the hard decisions.
“We’re resetting operations to shift the business focus to higher margin profitable products, smarter investments in our brands and lower cost production by cutting down on waste, eliminating unprofitable operations and improving distribution systems,” said Mr Gordon.
As part of a Business Update, Dairy Farmers announced its first half fiscal 05 results which saw revenue steady at $617.8 million compared to $618.5 million in the corresponding half last year. Net Profit After Tax was down from $14.6 million to $1.1 million, primarily because of accelerating costs and restructuring, with EBITDA for the period at $38.3 million, before significant items, compared to $51.2 million in HY04.
Mr Gordon said, “The issue is that the impact of cost pressures and restructuring hit the first half, with actions being taken to recover costs not flowing through until the second half of this financial year. As a consequence, during the second half of fiscal 05, we are expecting to deliver double digit EBITDA growth on our first half, subject to a range of external factors.
“During the second half F05 we will continue to review assets, reduce our cost base and invest in our eight champion brands to drive profitable sales and deliver an improved top line profit.
“Dairy Farmers has a solid underlying business demonstrated by our strong cash flows, more than halving of debt from $295 million to $132 million and payment of a two and a half cent interim dividend.
“The bottom line has been impacted by a combination of significant industry-wide cost pressures and the fact that we are undergoing major restructuring, with write downs required as we shift priorities to high margin products,” said Mr Gordon
The cost impact on our financial performance was $21.3 million, half year on half, primarily from record oil prices flowing through to freight, packaging, plastics and energy as well as industry high milk prices.
Significant items during the period included a profit of $39.5 million on the sale of Dairy Farmers’ share in National Foods and a profit of $8 million on the sale of the Ultimo Distribution Centre in Sydney. As part of Dairy Farmers restructure, the profits from these strategic sales are offset by a total of $49.1 million, from a write-down of assets of $44.5m and booking of redundancies of $4.6 million from a reduction in headcount of 160 employees.
Mr Gordon said, “Dairy Farmers needs to take some short term pain with the purpose of delivering long term gain to achieve real profitable growth. At the heart of the restructuring of Dairy Farmers is a sweeping review of all of our assets and businesses.
“With the first tranche of Step Change complete, some of the Dairy Farmers assets have been adjusted to ensure their book value aligns with the cash they are likely to generate in the future. Once the second tranche has been completed at the end of this financial year, further significant write downs are expected that we anticipate will be primarily cash based and generate considerable cost savings in the future.
“Tangible proof of us delivering on our promises is today’s launch of our new Dairy Farmers brand,” said Mr Gordon. “Our new brand vision means the bar has now been raised in the dairy sector which is changing dramatically as the food preferences of Australians alter and they demand more wholesome food solutions.
“Through Dairy Farmers’ new compelling look and feel, which stands for the fresh taste of country goodness, we will strongly re-establish the link between our farmers, who produce the milk, and our consumers who want pure and natural dairy products.
“The new Dairy Farmers brand vision is the first new look for the business in almost 10 years. It reinforces our long proud heritage and clearly differentiates Dairy Farmers from its competitors.
“Dairy Farmers has considerable latent brand value and our new positioning will reignite consumers’ interest in milk and the dairy category generally.
“Our people and our customers are passionate about the Dairy Farmers’ brands but particularly proud of the connection with Australian country goodness. Through our new brand we have embodied a unique feeling of trust in the land and farmers which was validated in extensive research conducted with Australian families and communities.
“And we’re not just reinvigorating the Dairy Farmers brand. A major pillar of my Step Change program to reset the business is smarter brand investment. In the coming weeks you’ll see clear evidence of this as we roll-out a variety of product innovations and advertising re-launches for brands such as Ski, Moove, Coon, Shape and Dare Shots,” said Mr Gordon.
