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In announcing its 2005 full year financial results, Chief Executive Officer, Mr Rob Gordon said, “We’ve made sweeping changes across the entire business during fiscal 2005, and we are today a stronger, more viable and agile business than we were 12 months ago.
‘‘In the face of the extensive changes to the business as well as a challenging external cost environment, we delivered double digit growth in operating Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) of 11 per cent during the past six months versus the first half of fiscal 2005. Total EBITDA for the year was $82.1 million while Net Profit After Tax (NPAT) was $22.6 million, both before one-off significant items. Operating cash flows remained solid at $51.1 million after interest and tax, and before one-off items,” Mr Gordon said.
“Today’s results demonstrate not only the speed with which we’ve improved our operations but also the potential upside within the business that we will now leverage through investment to generate profitable growth.
“Our shift in focus to higher-margin branded business is delivering real results. Through our enhanced product mix, quality of earnings improved by $19 million. We also doubled our investment in brand support, half on half, and have made significant progress in removing processing duplication by closing facilities and reducing our workforce.
“Using a combination of both cash flows from trading and the sale of non-core assets we have reduced net debt to $103.9 million, our lowest level in eight years. This gives us the capability to begin exploring strategic opportunities for growth such as earnings accretive bolt-on acquisitions.
“The success of our Step Change program to date means Dairy Farmers has now earned the right to grow. Through our strong balance sheet, ongoing cost savings, improved processing efficiencies and branded sales leadership, we’re moving into a phase of investment and growth to deliver improved value for farmer shareholders.
For the year to 30 June 2005, total input costs increased significantly. The Co-operative returned an additional $16 million to farmer members via increased milk pricing, compared with last year. High global dairy commodity prices also increased cheese costs for the period by approximately $10 million. Packaging, distribution and fuel costs were also higher as a result of record oil prices.
Funding Change
In choosing to embark on such an aggressive change initiative, Dairy Farmers has primarily used proceeds from the sale of non-core assets to fund its major restructuring through significant one-off items.
“Given the magnitude of the changes we are making to the business we have incurred significant one-off restructure costs. As reported at the first half, we’ve brought to account the vast majority of the complex financial one-off costs with the benefits flowing through increasingly during fiscal 2006.
“One-off costs for the full year included $44.6 million in redundancy payments, provisions, site closures and other restructure costs as well as funds to bolster our route distribution channel - together with $49.2 million in non-cash asset write downs, as were substantially flagged at the first half.
“These were partially offset by gains from the sale of non-core assets during the first half fiscal 2005 of $47.6 million,” said Mr Gordon. ‘’The end result is one-off significant items pre-tax during the year of negative $46.2 million compared with negative $6.5 million in the previous year,” said Mr Gordon.
FISCAL 2005 Pre One-Off Significant Items
| Operating EBITDA | $82.1 million |
| Operating Cash Flows* | $72.8 million |
| Operating NPAT | $22.6 million |
* Before interest and tax
In looking at Dairy Farmers’ overall performance during the 12 months to 30 June 2005, NPAT was $22.6 million compared with $28.7 million in fiscal 2004 both before significant items, generated by $82.1 million in operating EBITDA, down from $101.7 million in the previous year.
“The fiscal 2005 result is a complex one. In bringing to account all of the one-off restructuring costs into one year, our NPAT after one-off significant items is a negative $12.2 million. The inclusion of these one-off costs precludes a meaningful comparison to prior or future year on year performance.
Dividend
“Based on the solid fundamentals of the Dairy Farmers business, the Board has recommended today a final fully franked ordinary dividend of 3.5 cents to be paid in early January 2006, bringing the total ordinary dividend to 6 cents including the 2.5 cent interim dividend announced on 14 March 2005,’’ said Mr Gordon.
Step Change Progress
Commenting on the Step Change program announced in March this year, Mr Gordon noted the progress in consolidating operations from 14 to 11 sites which, by March 2006, will reduce Dairy Farmers’ workforce by one third. As previously indicated, changes across the business will deliver ongoing cost savings of $42 million per annum that will be fully realised during the course of the next two financial years, with a significant proportion being delivered during fiscal 2006.
“In seeking to leverage one of the best cold chain supply systems in the country, we’ve started to improve our distribution network with an increased sales-driven emphasis in our route and convenience channel.
Mr Gordon said, “Through the Grow, Fix, Exit strategy, our shift to higher margin products during the period has improved our product mix as we’ve started to exit lower margin business.
“We have significantly increased our brand investment, doubling second half on first half advertising spend during fiscal 2005. This increased investment combined with new product development will carry through into this financial year. We’re already seeing positive shifts in brand awareness, market shares are trending in the right direction and there are encouraging signs at the sales line.
“The improvements we’ve made in Step Change are creating positive momentum. Today I can announce that we’ve established a number of new partnerships via convenience channel supply agreements including the national white milk business for 7-Eleven convenience stores as well as white and flavoured milk ranging in Quix and Mobil service stations in South Australia and Victoria,” said Mr Gordon.
Outlook
Mr Gordon said, “The past 12 months has been all about turning this business around. As the first phase of our restructure nears completion, we are determined to keep going down our path of unrelenting improvements.
“Fiscal 2006 will be the year of investment to create accelerated and exciting growth building on the momentum we’ve already created, while maintaining solid profitability levels.
“As demonstrated to date, we will continue to evaluate all growth opportunities against the stringent and disciplined criteria to fully meet our obligations as a co-operative to our farmer members,” he said.
1. Maximising shareholder value – by improving the value of the business, paying a sustainable milk price and ensuring consistent dividends
2. Investing in a sustainable milk supply – by paying a viable milk price to ensure that farmers themselves have growing businesses which in turn provides the business with a secure supplier base
3. Optimising the return on capital invested – by becoming an efficient, low cost, competitive processor
4. Increasing sales of premium brands – by investing in our icon brands, strengthening number one or two market share positions, and extending new product development and distribution reach
“I’m confident we’re taking the right decisions for the medium to long-term. As we head towards a potential listing environment, we are now a stronger, more competitive co-operative with a clear roadmap for maximising shareholder value,” concluded Mr Gordon.
