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Dairy Farmers has confirmed that initiatives undertaken during the past three years to transform it from co-operative to a fast moving consumer goods business have placed it in a strong position to maximise shareholder value through a liquidity opportunity in 2008.
In releasing the Co-operative’s fiscal 2007 results today, Dairy Farmers Chief Executive Rob Gordon said: “The bold steps we have recently taken to maximise the performance of the business have created a strong platform from which to unlock the underlying value of shareholders’ equity in Dairy Farmers.”
Fiscal 2007 Financial Results
“In fiscal 2007, we said our focus would be on driving the business through growth in our champion brands. As a result, Dairy Farmers ended the period having grown strongly ahead of the market and key competitors, lifting our share of every branded retail category in which we operate,” Mr Gordon said.
The benefits of strong market share growth were however offset by a challenging cost environment, primarily in raw milk, and the decision to tackle a number of outstanding issues ahead of external investment in the business. One-offs for the year included disposal of backlogs of cheese inventory, finished goods logistics costs and additional costs required to cope with the runaway success of Dairy Farmers’ new yogurt launch.
“As a result, Earnings Before Interest, Tax, Depreciation and Amortisation from continuing operations for fiscal 2007 was $57 million compared with $61.3 million in fiscal 2006. However, on a normalised basis, Dairy Farmers would have expected to achieve an EBITDA in excess of $70 million for fiscal 2007,” Mr Gordon said.
During the period, Pro Forma Net Profit After Tax (based on company reporting, that is, before dividends) was $22.6 million compared with $23.7 million in fiscal 2006.
An impressive 7.6 per cent sales lift in the crucial supermarket channel compared with prior year helped deliver an overall increase in sales revenues by 4 per cent to $1.176 million.
“The cashflow position remains strong as evidenced by the capacity to repay $18.4 million in share forfeitures and other ex-member payments, and fund capital expenditure for growth, with leverage well within the Board’s target range at 38 per cent,” Mr Gordon said.
“In conjunction with supply partner, Dairy Farmers Milk Co-operative, Dairy Farmers also increased its annual milk intake during fiscal 2007 by 6.7 per cent to 1.06 billion litres, ensuring a secure and geographically spread supply base for the future.
Fastest Growing Dairy Brands
“Testament to the fact that our business turnaround is nearing completion, Dairy Farmers’ investment in our portfolio of iconic brands is yielding strong results. During the period, we lifted our branded dollar share positions in the retail channel – white milk increased by 5.8 per cent, flavoured milks by 22.1 per cent, cheese by 7 per cent and dairy foods by 12.3 per cent.
“In fiscal 2007, Dairy Farmers achieved a 6.7 per cent increase in gross revenues derived from its eight champion brands in the route and convenience channel compared with fiscal 2006. In the convenience channel specifically, Dairy Farmers’ white milk dollar shares increased by 10.3 per cent in a market growing 3.7 per cent while its flavoured milks increased by 17.8 per cent in a market growing at 4.3 per cent,” Mr Gordon said.
Growth Accelerates in First Quarter Fiscal 2008
“Importantly we have sustained this forward momentum in the current year. In the three months to September 2007, volume growth was up 7 per cent while sales revenue grew by 13 per cent compared with the same period last year,” said Mr Gordon.
Specifically, retail value growth in the first quarter 2008 was supported by a continuing strong growth trend in our branded portfolio versus the first quarter of fiscal 2007:
• Flavoured milks at 26.3 per cent versus category growth of 20.3 per cent, outstripping major competitors
• Cheese growing by 10 per cent against the total cheese market of 4.7 per cent
• Extended our market share of the sweetened everyday yogurt category to 36.2 per cent
• Dairy Farmers Thick & Creamy alone has a 7 per cent market share of the retail sweetened flavoured yogurt category after only eight months in market, with demand still accelerating.
“Despite significant price increases passed through to consumers in the first quarter of fiscal 2008, Dairy Farmers overall branded volumes remain strong, demonstrating the inherent equity in our brands,” Mr Gordon said.
“Our first quarter fiscal 2008 run-rate demonstrates that we are well positioned to extract pricing from the market albeit with the anticipated lag in consumer channels. As a result, trading EBITDA in the current half is outperforming that achieved in the second half of fiscal 2007.”
Maximising Shareholder Value
Commenting on the outlook for fiscal 2008, Mr Gordon said the clear objective for 2008 was to convert strong top-line growth performance into future bottom-line growth.
“The Board remains mindful of its intent to provide shareholders with liquidity access to the market value of their equity investment. It is committed to ensuring Dairy Farmers shareholders reap the benefits of all the hard work and investment that has gone into the business to date. In particular:
• Our overall positive brand sales growth momentum
• The outstanding success of our new yogurt brand and other innovations
• Our ability to recover higher farm-gate milk prices from the end consumer
“The Board is also cognisant of the significant value available in capitalising synergy benefits through potential industry rationalisation. Consistent with our fiduciary duties, Dairy Farmers directors will consider all liquidity options, including an ASX listing, to determine which stands to deliver the greatest value for our shareholders.
“The option which provides the best outcome for shareholders will determine the timing and nature of any liquidity opportunity,” Mr Gordon concluded
