AGSM MBA Programs
Pacific Brands
Case No: AGSM-13-002
Authors: J. Peter Murmann and Chris Styles
This case has been compiled from public sources solely for educational purposes and aims to promote discussion of issues
that surround the management of change in organisations rather than to illustrate either effective or ineffective handling of
an administrative situation.
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This material is not covered under authorization from AGSM or any reproduction rights organization. To order copies or
request permission to reproduce materials contact Academic Director, AGSM MBA Programs, Australian School of
Business, UNSW, Sydney, Australia, 2052. Phone: (+612) 9931 9400 Facsimile: (+612) 9931 9206
Part 1: Introduction
Let’s start with a recruitment video in which the CEO, Sue Morphet, describes Pacific
Brands. It will give you insight into the company’s operations, culture and leadership.
To see video, hold CTRL key and click on picture above or go to: http://bit.ly/p1qG7c
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Strategic Management 4
1a. Exercise Question:
What impression does this give you about the company? What do you
think of Sue Morphet as a CEO?
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Now let’s see how the company projects itself to potential customers, in this
case corporate customers.
To see video, hold CTRL key and click on picture above or go to:
http://bit.ly/nGdJ5X
Pacific Brands Case– Reading 19
3
1b. Exercise Question:
What are the core attributes and values Pacific Brands is communicating to
its customers? How compelling is the value proposition it presents?
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Part 2: The Company’s Strategy and
Performance in 2004
We will now go back in time to see how Pacific Brands got to where it is
today. The focus is on strategy, performance and the decisions management
made. Let’s start with the company strategy articulated in 2004 in the IPO
prospectus and the expected future performance.
Read
Please read the following excerpt, The Pacific Brands business, from Pacific
Brands Prospectus, 2004, pp. 48–62. Source: http://bit.ly/pBXzVd
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Strategic Management 4
Pacific Brands Prospectus
The Pacific Brands business
4.1 Overview
Pacific Brands is a leading manager of consumer brands in Australia and New Zealand, marketing some of
the most recognised brands including Berlei, Bonds, Clarks (childrens), Dunlop, Everlast, Grosby, Holeproof, Hush
Puppies, KingGee, Slazenger, Sleepmaker and Tontine. Pacific Brands’ commitment to market leadership has
provided it with number one or two positions across its major product categories in Australia and New Zealand.
These category leading positions have been achieved through a focus on being at the forefront of brand
development (including acquisitions), product innovation, marketing and an efficient and effective supply and
distribution network. Pacific Brands believes that it is one of Australia and New Zealand’s most informed
companies on the “what, where, when and why” of a consumer’s branded everyday essentials.
In November 2001, the Pacific Brands business was acquired by the Existing Shareholder from Ansell Limited
(formerly Pacific Dunlop Limited). A number of key strategic initiatives, which had been identified by Senior
Management, were embraced by the Existing Shareholder, including:
•
substantially increased brand development and marketing;
•
consolidation of “back-end” operations of sourcing, manufacturing and distribution;
•
continued development of strong relationships with key customers; and
•
exiting of unprofitable business.
The implementation of these initiatives has led to a significantly improved operating and financial performance and
has laid the foundation for further growth.
Table 4.1 – Summary financial information
The following table of summary financial information should be read in conjunction with the more detailed
discussion of financial information contained in Section 6, the Investigating Accountant’s Report on historical
financial information in Section 7, the Combined Special Purpose Financial Report included in Appendix I, the
Independent Review of Forecast Financial Information in Section 8, the Risk factors set out in Section 9 and other
information set out in this Prospectus.
$ million
FY2001
Adjusted Historical 1
6 months
ended
31 Dec
FY2002
FY2003
20022
Sales revenue
Gross profit
Gross margin
EBITA
EBITA margin
1,331.3
421.3
31.6%
90.9
6.8%
1,482.8
472.7
31.9%
108.7
7.3%
1,489.1
531.0
35.7%
127.2
8.5%
796.3
278.0
34.9%
66.8
8.4%
Pro forma
Forecast 3, 4, 5 Forecast 5
6 months
ended
31 Dec
2003
FY2004
FY2005
811.2
303.1
37.4%
81.8
10.1%
1,563.1
585.1
37.4%
151.0
9.7%
1,653.1
647.1
39.1%
170.5
10.3%
Notes:
1. Adjusted Historical Financial Information (excluding the six months ended 31 December 2002) has been derived from the audited
financial statements of Pacific Brands and its predecessor entities and has been reviewed and reported on by KPMG
as Investigating Accountant in Section 7. Details of the adjustments are included in Section 6.16.
2. Adjusted Historical Financial Information for the six months ended 31 December 2002 has been derived from the unaudited financial
statements of Pacific Brands.
3. Pro forma forecast financial information for FY2004 is derived from the Adjusted Historical Financial Information for the six months
ended 31 December 2003 and Directors’ forecasts for the six months ending 30 June 2004 and reflects the full year impact of the
new corporate and capital structures (details of which are set out in Sections 6.12 and 10.5) that will be in place upon Settlement,
as if they were in place as at 30 June 2003.
4. The FY2004 Statutory Financial Results will differ from the pro forma forecast insofar as it will reflect Pacific Brands’ actual financial
results from Settlement to 30 June 2004.
5. Forecast Financial Information is based on a number of estimates, assumptions and pro forma adjustments as described in Section
6.6.
48
Transforming Businesses: Changing the Business Model – Reading 19
5
Pacific Brands Prospectus
Section 4
Pacific Brands has four Operating Groups: The Underwear & Hosiery Group, The Outerwear & Sport Group, The Home Comfort
Group and The Footwear Group (refer Section 4.3 for Business Structure). The Underwear & Hosiery Group is Pacific Brands’ largest
Operating Group, representing 41% of FY2003 sales. Approximately 95% of Pacific Brands’ FY2003 sales were generated in Australia
and New Zealand.
Figure 4.2 – Sales by country (FY2003)
Figure 4.1 – Sales by Operating Group (FY2003)
Underwear & Hosiery 41%
Australia
Outerwear & Sport
22%
New Zealand
Home Comfort
20%
United Kingdom
3%
Footwear
15%
Malaysia
1%
United States
1%
Other
Source: Management financial information
2%
87%
8%
Source: Management financial information
Since Paul Moore’s appointment as Managing Director in August 1999, a focused strategy has been developed to leverage the scale
and category leadership positions of Pacific Brands to drive profitable growth. This strategy has changed Pacific Brands’ business
model from autonomously operating sub-groups aimed at establishing product category leadership positions to a focus on enhanced
Group-wide profitability, competitive position and future earnings prospects.
Over the years, the Pacific Brands business has demonstrated the ability to change and adapt to differing operating environments,
such as:
•
dismantling of protective trade barriers by the Australian Federal Government;
•
material fluctuations in exchange rates;
•
shift away from sourcing products solely from local manufacturing, to a strategic balance of local manufacturing and imports;
•
change in the retail marketplace, including the demise of major customers (eg Ezywalkin, Venture and Waltons);
•
major business acquisitions (eg Bonds, Clarks (childrens), Hush Puppies and Sara Lee Apparel Australasia);
•
change of ownership; and
•
significant divestments (eg adidas, Bonds Spinning, Sheridan, Tontine Fibres and owned China-based clothing manufacturing
operations).
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Strategic Management 4
49
Pacific Brands Prospectus
The Pacific Brands business
4.2 Brands
4.2.1 Owned brands
Pacific Brands’ most recognised brands, of which a number are icon brands in Australia, include the following:
In addition, a number of sub-brands are recognised by Australian consumers as icons. These include:
This icon status is demonstrated in part by the high levels of consumer awareness of the brands. Pacific Brands
commissioned Sweeney Research, a leading independent market research company, to conduct a survey of its
major brands in The Underwear & Hosiery Group and The Outerwear & Sport Group. Of the brands surveyed, the
average prompted overall consumer awareness level was 82%. This confirmed that these are leading brands in
terms of consumer awareness across product categories including underwear, intimate apparel, hosiery, socks,
sporting goods and workwear.
Since July 2001, Pacific Brands has significantly increased its level of brand marketing support, including
advertising spend on owned and licensed brands. Pacific Brands considers that its increased advertising spend
continues to enhance overall brand awareness and it is continually researching its product categories to identify
and lead consumer trends.
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Transforming Businesses: Changing the Business Model – Reading 19
7
Pacific Brands Prospectus
Section 4
4.2.2 Licensed brands
Pacific Brands has the right to manufacture, source and distribute certain brands within various product categories
in Australia and New Zealand under licence agreements. Licensed brand sales represented approximately 11% of
Pacific Brands’ FY2003 sales and are a valuable contribution to its overall brand positioning strategy. The major
licences are:
Pacific Brands believes that it is an attractive licensee of brands due to its:
•
substantial scale;
•
leading category positions;
•
innovative product development;
•
creative and significant investment in brand marketing and advertising;
•
continuous consumer research;
•
strategic customer partnerships;
•
effective merchandising programs;
•
strong sales force; and
•
breadth of distribution.
Consequently, Pacific Brands is often approached by potential licensors directly.
Terms and arrangements of major licences typically range from five to 10 years with royalties generally payable
based on a percentage of sales. The strength of Pacific Brands’ relationships with its licensors was tested during
the acquisition of the Pacific Brands business from Ansell Limited (formerly Pacific Dunlop Limited) in November
2001. In all cases, licences were retained, reinforcing Pacific Brands’ commitment to the development of licensed
brands. All material licence approvals required under the change of ownership proposed under this Prospectus
have been obtained.
4.2.3 Brand development and product innovation
Pacific Brands focuses on brand development and product innovation to enhance its category leading positions.
This approach involves increasing advertising and brand development expenditure which in turn enhances the
profile of the brands with consumers, strengthens product category positions and helps generate increased sales
and profitability. Accordingly, Pacific Brands believes that this approach, and the range of brands that it can
activate, provide positive growth opportunities for the Group.
As part of its brand strategy to enhance margins and profitability, Pacific Brands has exited certain unprofitable
sales in primarily unbranded products. Excluding divestments, Senior Management estimates that approximately
$90 million of unprofitable sales have been eliminated, primarily in FY2003.
In accordance with this strategy, Pacific Brands has significantly increased its level of advertising spend.
From FY2001 to FY2003, advertising spend increased from $32 million to $45 million and is forecast to increase
to $61 million in FY2004 and $73 million in FY2005.
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Strategic Management 4
51
Pacific Brands Prospectus
The Pacific Brands business
This increased advertising spend together with a focus on driving sales of branded products have contributed to a
compound annual increase in sales (FY2001 to FY2003) for the following brands:
•
Bonds: 9%
•
Clarks (childrens): 12%
•
Hush Puppies: 31%
•
Slazenger: 15%
•
Tontine: 12%.
Bonds is an example of the recent brand development strategy implemented by Pacific Brands. An icon brand in
Australia for almost 90 years, Bonds was reinvigorated in 2001 by new products focused on the women’s youth
underwear category, combined with a brand endorsement from Sarah O’Hare. Prior to this brand development
strategy, Bonds had limited recognition as a contemporary clothing brand.
Constant product innovation is also an important aspect of Pacific Brands’ business model in order to help
it maintain its leading product category positions. Pacific Brands has a long-standing history of innovative product
development and believes its design rooms are of world-class standard, using a combination of creative people
and the latest design technology. Over the years, Pacific Brands has been at the forefront of innovation with the
introduction of various products including:
•
Holeproof Computer socks
•
Berlei One fused bra
•
Bonds hipsters
•
Santoni seamless underwear
•
Hush Puppies Zero G comfort shoes
•
Tontine variable warmth quilt (marketed as “Venus & Mars”)
•
Dunlop Volley
•
LoveKylie range of underwear (developed
•
Holeproof Explorer socks
in conjunction with Kylie Minogue).
Pacific Brands has a long history of elite sportspeople using certain brands including Australian legends such as
Sir Donald Bradman, Evonne Goolagong-Cawley, Margaret Court, Ken Rosewall and Mark Waugh. Current
identities actively endorsing various brands include Michael Clarke, Jamie Durie, Kristy Hinze, Kylie Minogue,
Sarah O’Hare and Pat Rafter.
4.3 Business Structure
To maximise differing sales and marketing opportunities that exist across its product categories, Pacific Brands is
organised into four key Operating Groups:
Figure 4.3 – Operating Group structure
Underwear
& Hosiery
52
Outerwear
& Sport
Home Comfort
Footwear
Transforming Businesses: Changing the Business Model – Reading 19
9
Pacific Brands Prospectus
Section 4
The historical and forecast sales of these Operating Groups are set out below:
Table 4.2 – Operating Group sales summary
$ million
Adjusted Historical 1
FY2001
FY2002
FY2003
Underwear & Hosiery
Outerwear & Sport
Home Comfort
Footwear
Other 4
Total
541.3
257.7
277.1
246.9
8.3
1,331.3
597.6
329.8
298.2
245.4
11.8
1,482.8
612.0
322.8
295.5
224.7
34.1
1,489.1
Pro forma
Forecast 2, 3
FY2004
Forecast 3
FY2005
671.3
327.1
305.0
225.2
34.5
1,563.1
718.8
348.6
315.9
238.3
31.5
1,653.1
Notes:
1. Adjusted Historical Financial Information has been derived from the audited financial statements of Pacific Brands and its
predecessor entities and has been reviewed and reported on by KPMG as Investigating Accountant in Section 7. Details of the
adjustments are included in Section 6.16.
2. Pro forma forecast financial information for FY2004 is derived from the Adjusted Historical Financial Information for the six months
ended 31 December 2003 and Directors’ forecasts for the six months ending 30 June 2004.
3. Forecast Financial Information is based on a number of estimates, assumptions and pro forma adjustments as described in Section
6.6.
4. Includes intercompany eliminations and clearance store sales. The increase in FY2003 resulted from a change in allocation policy
relating to clearance store activities.
As mentioned above, Pacific Brands has exited certain unprofitable sales in primarily unbranded products.
Excluding divestments, Senior Management estimates that approximately $90 million of unprofitable sales have
been eliminated, primarily in FY2003. Refer to Section 6.5 for management discussion and analysis of historical
financial information and Section 6.6 for a description of the Directors’ estimates, assumptions and pro forma
adjustments on which the Forecast Financial Information is based.
4.3.1 The Underwear & Hosiery Group
The Underwear & Hosiery Group is a leading marketer in the Australian and New Zealand TCF industries in each
of its major product categories. It is the largest Operating Group within Pacific Brands with FY2003 sales of $612
million, EBITA of $66.9 million and approximately 3,400 employees. Sales are derived from a broad range of
products, including underwear, intimate apparel, hosiery and socks for women, men and children, which are
distributed throughout Australia and New Zealand and in selected international markets. The leading brands in
The Underwear & Hosiery Group are:
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Strategic Management 4
53
Pacific Brands Prospectus
The Pacific Brands business
The Underwear & Hosiery Group has achieved its category leading positions through a strategy of:
•
substantial marketing investment to enhance brand strength;
•
capitalising on emerging product markets – as exhibited by the LoveKylie and Bonds ranges of underwear and
intimate apparel;
•
extending key brands into new categories – such as Bonds into bras and outerwear (ie contemporary
clothing);
•
licences to enable quick response to trends;
•
product innovation and development – as seen with the focus on seamless underwear for women;
•
efficiency in sourcing – the business is well balanced between third party sourcing and own manufacturing;
and
•
effective distribution and strong customer relationships.
The Underwear & Hosiery Group has invested in local manufacturing where it believes it has long-term sustainable
advantages in production capabilities (refer to Section 4.6.2 for details of the benefits of local manufacturing).
Major production facility investments have been made in:
•
underwear – Nunawading (Victoria), Cessnock (NSW), and Unanderra (NSW);
•
hosiery – Coolaroo (Victoria); and
•
socks – Nunawading (Victoria).
The group also has manufacturing facilities in Christchurch (socks) and Palmerston North (thermal underwear) in
New Zealand.
The Underwear & Hosiery Group imports a significant proportion of its products from overseas sources.
Approximately 65% to 70% (by value) of its products are manufactured outside Australia and New Zealand, with
most goods sourced from China. The Underwear & Hosiery Group operates, and subject to the obtaining of the
approvals referred to in Section 10.5, will continue to operate, an Indonesian-based intimate apparel production
facility servicing both the Australian and overseas markets.
Rationalisation of the supply network has been a key focus of The Underwear & Hosiery Group. Over the past
12 months, significant effort has been directed towards consolidating the number of distribution centres within the
group. In conjunction with the consolidation of distribution centres, enhanced supply planning capabilities have
been introduced in order to reduce inventory levels and customer delivery times.
4.3.2 The Outerwear & Sport Group
The Outerwear & Sport Group is one of Australia’s leading suppliers of workwear, casual clothing, sports clothing
and footwear, sporting equipment and hardgoods (bicycles and bicycle helmets) with FY2003 sales of $323 million,
EBITA of $30.6 million and approximately 550 employees. Traditionally, branded products within the sports clothing
and footwear category grew rapidly as products to wear while playing sport. However, this segment of the sporting
goods industry is now centred on technology-based leisure products. These products are increasingly branded in
response to international trends. The leading brands in The Outerwear & Sport Group are listed in Table 4.3:
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Transforming Businesses: Changing the Business Model – Reading 19
11
Pacific Brands Prospectus
Section 4
Table 4.3 – The Outerwear & Sport Group brands by product category
Brands
Sporting equipment
and hardgoods
Clothing
✔
Footwear
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
✔
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Strategic Management 4
55
Pacific Brands Prospectus
The Pacific Brands business
The Outerwear & Sport Group’s strategic focus is to:
•
continue to leverage its brands in existing and new categories;
•
drive efficiency improvements in its operational processes; and
•
identify and acquire strategic “bolt-on” branded businesses.
A significant proportion of The Outerwear & Sport Group’s sales are through independent and specialty retail
channels. The benefits of combining outerwear and sporting goods products into one Operating Group include the
similar retail channel distribution requirements and the performance characteristics of the products. A recent
example of these benefits is the integration of KingGee into this Operating Group following its acquisition in 2001.
The positioning of KingGee within The Outerwear & Sport Group, combined with additional marketing support, has
contributed to KingGee’s significantly improved performance resulting in sales growth of 12% between FY2001
and FY2003.
The Outerwear & Sport Group sources more than 90% of its products outside Australia, primarily from China and
Fiji. Its local manufacturing facilities are based in Hallam, Victoria (Rosebank bicycle helmets) and Bellambi, NSW
(KingGee). The Outerwear & Sport Group manages the design, sourcing and distribution of its products.
Warehouse and distribution facilities are located throughout Australia and New Zealand. As bicycles are bulky and
expensive to transport, localised sites are maintained as distribution points to meet orders both in a timely and
cost-efficient manner.
4.3.3 The Home Comfort Group
The Home Comfort Group is a leading manufacturer and marketer of mattresses, pillows, foam and carpet
underlay in Australia and New Zealand. In FY2003, it generated sales of $296 million, EBITA of $24.4 million and
employed approximately 1,600 people. The leading brands in The Home Comfort Group are:
Pacific Brands believes that the vertical integration of The Home Comfort Group makes it well placed to
consolidate its position, primarily through:
•
continuing to develop consumer loyalty;
•
strengthening relationships with retail customers; and
•
enhancing its technical expertise in its product categories.
While the different customer distribution in this Operating Group (ie exposure to specialty stores and furniture
manufacturers) spreads Pacific Brands’ risk, there are a number of commonalities that assist its performance
including Group-wide brand marketing skills and supply chain capability.
The Home Comfort Group has manufacturing operations in Australia and New Zealand (see Table 4.4 below) and,
subject to the obtaining of the approvals referred to in Section 10.5, will retain a 50% interest in a joint venture in
Malaysia which manufactures mattresses.
Table 4.4 – The Home Comfort Group Australian and New Zealand manufacturing locations
Product category
Australia
Mattresses and beds
Pillows
Foam
Carpet underlay
New Zealand
Mattresses and foam
56
Location
Brisbane, Hobart, Melbourne, Perth, Sydney
Melbourne
Adelaide, Brisbane, Hobart, Melbourne, Perth, Sydney
Melbourne, Sydney
Auckland, Christchurch
Transforming Businesses: Changing the Business Model – Reading 19
13
Pacific Brands Prospectus
Section 4
Products supplied by The Home Comfort Group are typically bulky in nature. The associated distribution
and transport costs mean that import opportunities are less viable, and therefore, approximately 85% of
manufacturing has remained within proximity to its major customers in Australia and New Zealand.
Distribution is managed at each of the manufacturing sites, with product shipped directly to customers.
4.3.4 The Footwear Group
The Footwear Group is the largest supplier of footwear in Australia and has a presence in the UK market
through Pacific Brands (UK) Ltd. The Footwear Group has maintained its leadership position utilising its flexible
sourcing and manufacturing arrangements throughout the Australian Federal Government’s dismantling of
protective trade barriers. With FY2003 sales of $225 million, EBITA of $17.0 million and approximately 950
employees (including 650 employees in China), The Footwear Group offers a comprehensive range of casual,
comfort and fashion footwear for women, men and children. The leading brands in The Footwear Group are:
The Footwear Group’s strategic focus is to become a leading marketer of branded casual, comfort and
fashion footwear, primarily through:
•
developing a brand management focus;
•
acquiring and/or licensing national and international brands; and
•
increasing advertising spend to improve the awareness of its brands.
Pacific Brands acquired the Clarks (childrens) and Hush Puppies Australian and New Zealand businesses in
September 2000. These acquisitions have allowed The Footwear Group to compete at the premium end of
the children’s and comfort footwear segments and gain access to international footwear product development.
Clarks (childrens) and Hush Puppies were quickly integrated into The Footwear Group, complementing existing
product offerings, as well as providing supply chain benefits. In addition, the June 2003 acquisition of Sachi
has enabled The Footwear Group to improve its category position within the high-end women’s fashion
footwear segment of the market.
The Footwear Group’s products are sourced and manufactured overseas, mostly in Asia. In addition, Pacific
Brands owns a China-based footwear manufacturing facility, which is used to supply its Australian and
UK operations.
In recent years, The Footwear Group has consolidated its distribution activities. The majority of Australian
warehousing and distribution is centralised at the Altona (Victoria) distribution centre.
14
Strategic Management 4
57
Pacific Brands Prospectus
The Pacific Brands business
4.4 Category Leading Positions
With wide-ranging brands across the various retail channels, Pacific Brands leads the marketplace in its major
product categories:
Table 4.5 – Selected major Australian category positions
The Underwear & Hosiery Group
The Home Comfort Group
Underwear
– Men’s underpants
– Women’s briefs
Intimate apparel (eg bras)
Hosiery
Socks
Mattresses and beds
Pillows
Foam
Carpet underlay
1st
1st
1st
1st
1st
The Outerwear & Sport Group
2nd
1st
1st
1st
The Footwear Group
Sporting equipment and hardgoods
– Bicycles
– Golf balls
– Tennis racquets and
championship quality balls
Outerwear
– Workwear
Footwear
1st
2nd
2nd
1st
2nd
Source: Management estimate (based on market supply units)
Pacific Brands operates across many product categories within the TCF, sporting goods, and household
furnishings and equipment industries. In FY2003, no one product category accounted for more than 18% of sales
and no one brand more than 14% of sales. Products are mostly positioned at value price points and the majority
of products are everyday consumer essentials helping to ensure low sensitivity to changing economic conditions.
Figure 4.4 – Sales by product category (FY2003)
Underwear
18%
Mattresses and beds 8%
Intimate apparel
9%
Pillows
Hosiery
3%
Foam
8%
Socks
7%
Carpet underlay
2%
Sporting equipment
and hardgoods
6%
Footwear
Outerwear (workwear, 15%
casual and sport)
Other
2%
17%
5%
Source: Management financial information
4.5 Diversified Customer Network
Pacific Brands markets and distributes its products to the key participants in the major retail channels, with no
single retail channel dominating its sales. The major retail channels include:
•
department stores;
•
discount department stores;
•
specialty stores;
•
supermarkets; and
•
independent stores.
This broad customer network ensures Pacific Brands’ products are accessible to most Australian and New
Zealand consumers while not being reliant on any single customer. No single customer accounted for more than
10% of sales in FY2003. Pacific Brands continues to strengthen its relationships with customers in a continually
changing retail environment.
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15
Pacific Brands Prospectus
Section 4
Figure 4.5 – Sales by retail channel (FY2003)
Department stores
13%
Discount
department stores
31%
Specialty stores
10%
Supermarkets
5%
Independents/other 41%
Source: Management financial information
In FY2003, Pacific Brands’ top 10 customers (listed in alphabetical order) accounted for 49% of sales:
•
Best & Less
•
Lowes
•
Big W
•
Myer
•
David Jones
•
Payless Shoes
•
Farmers (New Zealand)
•
Target
•
Kmart
•
Woolworths/Safeway
4.6 Supply Chain
4.6.1 Introduction
The strength of Pacific Brands’ supply chain underpins its brand and product category positioning. In recent years,
Pacific Brands has emerged from a period of autonomously operating businesses. The Group has consolidated its
sourcing, manufacturing and distribution systems to create supply chain efficiencies across its Operating Groups.
Pacific Brands has continually adapted its sourcing, manufacturing and distribution activities to accommodate and
pre-empt changes in product category requirements and customer needs. Pacific Brands recognises the strategic
importance of a flexible supply chain to pursue new and different opportunities as they arise as well as being
responsive to customer demands.
Pacific Brands’ product category scale, together with the breadth of its infrastructure, allows it to:
•
meet customer requirements in a timely and effective manner;
•
work with major customers on effective supply chain solutions; and
•
provide services that eliminate costs for itself and its customers through its various distribution and logistics
networks.
Figure 4.6 – Annual product category scale (selected categories)
Scale of supply chain (indicative)
60 million pairs of underpants/briefs
50 million pairs of socks
9 million units of intimate apparel (eg bras)
5 million golf balls
25 million outerwear garments
16 million kgs of foam
490,000 mattresses and beds
4 million pillows
11 sq kms of carpet underlay
23 million pairs of shoes
Source: Management estimate
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Strategic Management 4
59
Pacific Brands Prospectus
The Pacific Brands business
Major Australian retailers are embracing supply chain improvements. Pacific Brands views this as a positive as it
can interact with major retailers with a scale not readily available to others. Pacific Brands is working collaboratively
with its major retailers to improve their respective supply chain capabilities.
4.6.2 Overseas sourcing and local manufacturing
Pacific Brands is one of Australia’s largest importers of consumer goods from Asia, while at the same time
retaining a strategic local manufacturing base in product categories where it believes Australian manufacturing will
provide a long-term competitive advantage. The flexibility provided by a combination of import sourcing and local
manufacturing is a strength of Pacific Brands.
Overseas sourcing
Third party sourcing encompasses a diverse product range and provides Pacific Brands with:
•
greater flexibility in changing designs and products;
•
a variable cost base and low cost of production; and
•
greater efficiency.
Pacific Brands’ long history of product sourcing provides it with on-going benefits including:
•
expertise and skills acquired through experience;
•
long-term relationships with quality suppliers who are accustomed and committed to Pacific Brands’
requirements;
•
exclusive relationships with various overseas suppliers enhancing product quality, design protection, flexibility,
timeliness and responsiveness;
•
commitment to use of suppliers who comply with International Labour Organization standards;
•
development of experienced sourcing personnel; and
•
established credit track record which helps improve payment terms.
Pacific Brands is continually consolidating its sourcing arrangements through its dedicated offices situated in Hong
Kong and China.
Local manufacturing
Pacific Brands has a substantial investment in Australian-based manufacturing, serving a strategic purpose of
balancing the needs of customers with Pacific Brands’ cost objectives. In particular, the Australian manufacturing
presence is maintained because:
•
it is more capital intensive (such as the production of socks and hosiery) allowing it to be cost competitive;
•
it offers a flexible, quick-response capability;
•
it allows the local manufacture of new products on a trial basis while design, demand and other requirements
are assessed (if required, overseas sourcing can then be utilised);
•
the flexible modular garment assembly processes and systems contribute to low cost and responsive
production; and
•
bulkier products (mainly those within The Home Comfort Group) need to be positioned within proximity of
sources of demand to minimise freight costs and lead times.
4.6.3 Distribution activities
In Australia, Pacific Brands has 12 stand-alone distribution centres, with the major facilities utilising radio frequency
(RF) technology for the management of inventory and the paperless picking of customer order requirements
resulting in high inventory accuracy and labour efficiency levels. The integrated IT and RF technologies enable the
picking of multiple orders simultaneously. Due to the extensive reach of Pacific Brands’ products, the distribution
centres handle a multitude of customer requirements, with technology enabling customer service and support.
4.7 Future Growth Opportunities
Pacific Brands’ growth strategy is founded on three core planks, being:
60
•
brand and category growth;
•
operational effectiveness; and
•
strategic acquisitions.
Transforming Businesses: Changing the Business Model – Reading 19
17
Pacific Brands Prospectus
Section 4
4.7.1 Brand and category growth
Brand development
There is little doubt that consumers respond positively to strong brands. Pacific Brands manages a wide-ranging
stable of brands that are distributed primarily through retail customers. The brand development strategy is focused
on ensuring that consumer demand for its products remains high.
Concepts and initiatives continue to be developed by Pacific Brands to provide enhanced profitability, mainly
through increased margins. These concepts and initiatives include the on-going marketing and development of
existing brands in order to improve product category positions, together with the rationalisation of unprofitable
product categories. Increased advertising and marketing focus on key brands across various product categories is
expected to enhance their “everyday essentials” status in the retail marketplace.
New categories
Pacific Brands’ scale, brand awareness, infrastructure and customer relationships provide the opportunity to enter
new product categories within the consumer goods industries in which it operates (eg KingGee into workboots).
Pacific Brands diligently assesses the viability of entering new product categories and will only enter such
categories if their brand attributes are consistent with its business model, and Pacific Brands’ flexible sourcing and
distribution capabilities can be sufficiently utilised to ensure a profitable return.
Overseas sales
Pacific Brands’ primary business focus remains on the Australian and New Zealand markets; however, it believes
that it is well positioned outside these core markets to exploit overseas opportunities. Pacific Brands currently
distributes intimate apparel and footwear in the UK and US. Its brand management and product sourcing
capability provide it with the capacity to expand its global reach.
In FY2003, overseas sales included:
•
intimate apparel in the US and UK ($19 million);
•
bedding in Malaysia ($17 million); and
•
footwear in the UK ($34 million).
4.7.2 Operational effectiveness
Pacific Brands’ supply chain strategy provides significant opportunities for it to leverage its scale and enhance
profitability by rationalising, consolidating and extending its operations. Some of the initiatives underway include:
•
consolidation of:
–
offshore sourcing arrangements, providing improved pricing, quality of product and increased flexibility with
regard to “make or buy” decisions;
–
customer orders, resulting in reduced freight costs; and
–
warehouses, leading to reduced transport costs and more effective use of existing space;
•
moving to electronic ordering and despatch through the use of bar-coding; and
•
collaborative forecasting with customers, in order to improve Pacific Brands’ forecasting of demand patterns,
resulting in more effective inventory management.
Pacific Brands has recently established a dedicated internal team focused on operational efficiencies
(Project Brave New Way). The Brave New Way team analyses, evaluates, recommends and actions operational
efficiency programs across Pacific Brands, with a view to eliminating business complexity and improving margins.
4.7.3 Strategic acquisitions
Pacific Brands’ substantial scale has enabled it to extract benefits by utilising its existing infrastructure to maximise
returns from acquisitions. This has been evidenced by the recent business acquisitions of Clarks (childrens), Hush
Puppies, Sara Lee Apparel Australasia (including brands such as KingGee, Razzamatazz and Stubbies), Sachi and
Kolotex. Significant cost savings have been, and continue to be, extracted in areas including manufacturing,
distribution, sales and marketing, and administration.
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Strategic Management 4
61
Pacific Brands Prospectus
The Pacific Brands business
Through focused brand marketing and product innovation, Pacific Brands has achieved, and continues to achieve,
sales growth through these acquisitions. The extraction of such benefits facilitates Pacific Brands exceeding its
internal required rate of return on acquisitions and also provides it with a competitive advantage in pursuing
complementary acquisitions.
Pacific Brands is continually reviewing the potential for acquisitions that can be absorbed into its existing
infrastructure to provide either new product category opportunities or improve existing product category positions.
4.8 Business Systems
Pacific Brands has a stable and reliable IT infrastructure. The majority of Pacific Brands’ businesses operate under
one of two enterprise resource planning (ERP) systems complemented by in-depth business intelligence software
and a centralised data warehouse and supply chain system. Within Australia and New Zealand, call centre,
hardware and communications infrastructure has been outsourced to third party providers. Pacific Brands has a
disaster recovery plan in place for its key IT systems, including off-site back-up facilities.
Pacific Brands has focused its e-business activities on business-to-business initiatives. Approximately 80%
of orders with customers are electronic. A leading edge web-based system has been developed to efficiently
service small to medium-sized customers.
4.9 Corporate Social Responsibility
Pacific Brands has a strong commitment to supporting the communities in which it conducts business, providing
funding, products, and the time of its employees to various community-based charities.
To date, Pacific Brands’ key initiative has been supporting the Caring For You program. Caring For You is a
“grass roots” program in Australia that operates workshops for women treated for breast cancer. It is staffed by
both full-time employees and volunteers (all breast cancer survivors) who donate their time to run these workshops
across Australia. Pacific Brands believes that this program will help make a difference to women afflicted with
breast cancer.
Looking forward, Pacific Brands will continue its involvement with various community-based charities.
4.10 Code of Conduct for Manufacturers and Suppliers
Pacific Brands is committed to ethical and responsible conduct in all of its operations and respect for the rights
of all individuals and the environment. Pacific Brands expects these same commitments to be shared by all
manufacturers and suppliers of its products and seeks to enforce this policy through a formal code of conduct,
which includes:
•
not using child labour;
•
not using any forced or involuntary labour; and
•
providing employees with a safe and healthy workplace in compliance with all applicable laws and regulations.
Pacific Brands regularly conducts audits of its suppliers and in the event that a supplier is unable or unwilling to
achieve compliance, Pacific Brands reserves the right to terminate or suspend the relevant supply contract.
4.11 Environment
Pacific Brands’ operations are subject to environmental laws and regulations, the details of which vary depending
upon the jurisdiction in which the operation is located. These environmental laws and regulations control the use of
land, erection of buildings and structures on land, the emissions of substances to water, land and atmosphere, the
emission of noise and odours, the treatment and disposal of waste, and the investigation and remediation of soil
and groundwater contamination.
Pacific Brands has procedures in place designed to ensure compliance with all environmental regulatory
requirements.
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Transforming Businesses: Changing the Business Model – Reading 19
19
2a. Exercise Question:
What is the business model of the Pacific Brands? Analyse it in terms of the
framework presented in Johnson, Christensen & Kagermann (2008), SM4
Reading 1, which articulates a business model in terms of four elements: 1.
The Customer Value Proposition, 2. The Profit Formula, 3. Key Resources
and 4. Key Processes.
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Strategic Management 4
2b. Exercise Question:
What is your assessment of the business model? Would you buy stock at the
IPO?
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Part 3: Company Performance and Decisions
in 2008-9
Let’s now move forward five years and see how the original business model
performed and how management responded. In SM3 we encountered
Wesfamers and its fundamental objective of achieving a high total
shareholder return (TSR). The 2008 Annual report of Pacific Brands
publishes for the last time TSR figures since IPO.
Source: Annual Report 2008: http://bit.ly/rcQBsZ
A year later management addresses the performance problems of the firm by
introducing new strategic initiatives.
Pacific Brands Case– Reading 19
21
Annual Report 2009: CHAIRMAN & CEO’S REVIEW
Dear Shareholders,
The last twelve months have seen significant change in your business – changes that
position the Company for a sustainable, positive future. As we mentioned in our last
annual report, Pacific Brands completed a comprehensive strategic review of your
business, driven by the imperative to keep Pacific Brands relevant, competitive and
strong. The outcome of our review is a strategy we believe will deliver the most
sustainable future for our Company – ‘Pacific Brands 2010’. The strategic review
confirmed that while our business model is inherently sound, there were areas of the
business we could improve. We had too many brands, too much complexity, high cost
structures in local manufacturing and limited uniformity of processes and procedures.
However, the review also revealed pockets of excellence which could be leveraged
throughout our entire Company. Throughout the year, we commenced the
implementation of Pacific Brands 2010 – encompassing restructuring, refinancing,
retraining, reskilling and regenerating our Company. We are pleased to present the
6th Annual Report of Pacific Brands for the year ended 30 Jun 2009.
Financial Results
Pacific Brands achieved solid operating earnings and cashflow in challenging
market conditions.
Our sales were $2.0 billion and our earnings before interest tax and amortisation
(EBITA) and significant items were $205.3 million. Reported earnings in F09 were
impacted by a number of significant items not related to ongoing operations. The
group booked non-cash asset impairment and write-down charges and incurred
restructuring expenses of $334.6 million (post tax) associated with the
implementation of Pacific Brands 2010.
We’ve maintained solid net operating cashflow of $81.2 million after significant
items and capital expenditure through tight control of expenses and prudent
inventory management.
Significant costs have been taken out in all businesses as we accelerated the
implementation of the Pacific Brands 2010 transformation program in response to
the volatile and softer market conditions.
New Capital Structure
The Company now has a much stronger balance sheet following the equity raising
and debt refinancing completed during the year.
As we announced in April, Pacific Brands has extended the maturity date of its
debt, with no significant refinancing now required until March 2012. This is an
excellent result that demonstrates continued support from our banking syndicate.
We were also pleased with the results of our $256.0 million equity raising,
successfully completed in June this year. The strong support from investors has
resulted in a strengthening of Pacific Brands’ balance sheet and has provided the
Company with additional financial flexibility.
As a result of the equity raising and our solid cash flow generation, we have reduced
our net debt levels to $452.8 million at 30 June 2009, from $742.7 million at 30
June 2008. Our gearing levels have dropped during the year to 2.0 times from 2.9
times, we have fully repaid tranche 1 of our debt and have reduced tranche 2 by
$117.5 million.
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22
Strategic Management 4
We would like to welcome our new shareholders who joined the register throughout
the year and thank our existing shareholders who supported us during the equity
raising.
Pacific Brands 2010
Our strategic review left us in no doubt that we needed to make significant
structural changes to the Company.
While Pacific Brands had performed well in the environment that existed in
previous years, the new environment, with production and performance
benchmarked by global standards, meant that we had to update the way we did
business in order to ensure the future strength and performance of the Company.
The strategic review highlighted that we had an extremely cluttered portfolio – our
top twenty brands provided us with almost two-thirds of our sales – and our long tail
of almost two hundred other brands accounted for just 2% of sales.
The strategic review confirmed we could get better returns by concentrating on our
key brands and devoting more resources to growing them. Under Pacific Bands
2010, we are progressively discontinuing, merging or divesting our smaller brands to
create a stronger and more focused portfolio of brands. We are putting more of the
right skills and resources into the teams that support our key brands.
We have made good progress implementing Pacific Brands 2010 – transforming our
business and strengthening our business model. All the initiatives contained in the
plan are underway. Our cost savings are ahead of plan and are tracking towards an
annualised target of $150 million by the end of F11 with full impact in F12 (based
on current market conditions and currency rates, and before any reinvestment).
The Pacific Brands 2010 transformation program has six core themes set out below.
1. Rationalise and focus the portfolio 2. Optimise the revenue base 3. Rebase
overhead cost structures 4. Transform supply chain and operations 5. Reduce capital
employed 6. Build organisational capability Implementation achievements during
F09 included:
• Discontinued, merged and divested more than 150 brands and reduced stock
keeping units by 10%
• Increased prices for the first time in many years for some businesses
• Prioritised marketing expenditure to increase effectiveness
• Decreased the workforce by more than 800
• Re-negotiated more than 50% of the volume of our supplies from China
• Closed four factories and part of another
• Reduced inventory holdings
• Rolled out a ‘brand excellence’ improvement program
• Introduced new product development processes to the majority of the group
• Implemented new product lifecycle management and financial reporting systems
Manufacturing Closures
While the Pacific Brands 2010 strategy has involved many decisions, the most
significant of these in terms of the impact on our employees has been the cessation
of the majority of clothing manufacturing in Australia and New Zealand and the
resulting outsourcing of these to offshore suppliers.
continue
Pacific Brands Case– Reading 19
23
Pacific Brands was the last major Australian company still manufacturing clothing
in any significant capacity onshore. Until now, we have maintained as much
manufacturing here as possible. Yet we have sourced approximately 70% of our
products from overseas for many years.
This decision will result in more than 1,200 manufacturing employees being made
redundant. While the rationale of making so many people redundant was
compelling, it didn’t make the decision any easier or more palatable. Many of these
people have been with us for decades and have made an important contribution to
the development of Pacific Brands.
In the course of deciding to restructure the business, our considerations included
ensuring that we would do everything possible to give our employees being made
redundant the best chance of getting a new job in sustainable industries.
We have been working in consultation with the Textile Clothing and Footwear
Union of Australia to develop, fund and implement an extensive retraining
program for all manufacturing employees being made redundant.
It is a program that is unique in Australia and has been extended to our New
Zealand employees in consultation with the National Distribution Union in New
Zealand. This sets a new benchmark for managing redundancies.
Most significantly, impacted employees have already, and will continue to, receive
retraining and re-skilling while still in their current jobs.
All affected manufacturing workers have been offered retraining and have access to
$3,000 worth of courses and up to three weeks paid leave while they are still in their
jobs, which is over and above any government retraining they may be eligible for.
We are determined to support our employees and assist them with their transition
to new work and new opportunities.
Pacific Brands, like most other major wholesalers, has been importing from Asia for
more than 50 years. We will continue to work closely with our supply partners to
ensure all our products and fabrics manufactured offshore maintain our high quality
standards.
Changes to the Board and Management Team
There were a number of changes to the structure and composition of the Board and
Management team of Pacific Brands during the past year:
• In November 2008, Pat Handley resigned as Chairman of Pacific Brands after
seven years in the position. We thank Pat for his contribution to the Company
• James MacKenzie was elected to the role of Chairman by the Board following
Pat’s resignation
Dr Nora Scheinkestel joined the Board in June. Nora brings invaluable experience
to Pacific Brands, having served as a non-executive Chairman and director of
companies in a wide range of sectors in the public, government and private spheres
In April this year, CFO Stephen Tierney resigned after nineteen years at Pacific
Brands. We thank Stephen for his contribution to the Company
• David Bortolussi joined the Company as Chief Financial and Operating Officer
in June this year. David joined the Company from Foster’s and prior to that was
with McKinsey & Company and PricewaterhouseCoopers
• Simon Smith joined Pacific Brands to lead our Home Comfort division from
eBay Australia where he spent eight years as Managing Director
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24
Strategic Management 4
• Melanie Allibon joined the Company to manage Human Resources across the
group following roles at Amcor, Foster’s and BHP
Pacific Brands has a skilled management team with the experience and enthusiasm
to continue the successful implementation of Pacific Brands 2010 and ongoing
operations of the Company.
Dividend
The Pacific Brands Board has decided to preserve the Company’s capital and no
dividends have been declared in the year ending 30 June 2009.
The Board will make a decision in respect of future dividends after assessing the
Company’s operating performance at each half and the outlook at that time.
Outlook
Since the start of the financial year, trading has been mixed with some businesses
performing well and others marginally down on the prior corresponding period.
Although the economic environment and outlook remain uncertain, the Company
notes cautious optimism in the market and recent signs of improving consumer
confidence.
Consistent with the Pacific Brands 2010 strategy to rationalise and focus the
portfolio, reported sales revenue is expected to reduce over the course of the
transformation period. However, implementation of Pacific Brands 2010 is expected
to result in a more robust and profitable business in the longer term.
Feedback
Your feedback is extremely important to us and we want to ensure that you, our
shareholders, have an avenue to ask any questions about Pacific Brands 2010 or
other Company matters.
We have created a designated email address for you to submit questions and we will
endeavour to address these at our Annual General Meeting on 20 October 2009 at
The Sebel, Albert Park in Melbourne. Please email any questions you may have to
agmquestions@pacbrands.com.au
Thank you for your support over the past 12 months.
James MacKenzie, Chairman
Sue Morphet, Chief Executive Officer
26 August 2009
Source: Annual Report 2009, http://bit.ly/o2jeR3
Pacific Brands Case– Reading 19
25
3a. Exercise Question:
How has the business model changed for Pacific Brands?
incremental or large change from the previous model?
Is it an
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3b. Exercise Question:
What were the main drivers of, and assumptions behind, these decisions?
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Strategic Management 4
3c. Exercise Question:
What are the pros and cons of shifting all manufacturing out of Australia?
On balance, would you have made the same decision as CEO?
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Part 4: Reactions to decision to stop
manufacturing in Australia
Now let us look at a video and two newspaper articles describing the public
reaction.
WORK HEADS OFFSHORE AS PACIFIC BRANDS AXES JOBS,
The Age February 26, 2009
To see video, hold CTRL key and click on picture above or go to:
http://bit.ly/qS2psp
Pacific Brands Case– Reading 19
27
BY BEN SCHNEIDERS, ARI SHARP and KATHARINE MURPHY
with MARC MONCRIEF
ANOTHER wave of mass lay-offs is looming in Victorian manufacturing after
Pacific Brands, the company behind some of Australia’s most famous clothing
labels, said it would axe more than 1800 jobs.
In a decision with potentially drastic implications for local industry, Pacific Brands
said it saw no future in manufacturing here, with most of its remaining local
production to be transferred to Asia.
The company, whose household name labels include Bonds and Holeproof, will
close seven factories over the next 18 months and axe 1200 manufacturing jobs,
including 553 in Victoria.
About 650 administrative staff will also be shed.
Chief executive Sue Morphet, announcing the cuts, said that with few exceptions it
was no longer competitive to keep making clothes in Australia. Bicycle helmets and
carpet underlay will be among the few products still made here.
The company went ahead with its decision despite offers of financial aid from the
Federal Government, and despite claims that it was needlessly closing profitable
plants.
Federal Industry Minister Kim Carr blasted the company for rebuffing the offer of
help. "I spoke to the chairman of the board and I specifically asked was there
anything further we could do to get the company to change its mind, and the
answer they have given me is ‘no’."
There were also claims that some of the cuts were not commercially justified.
"It just doesn’t make sense to close those parts of the business that are profitable,"
said Textile, Clothing and Footwear Union national secretary Michele O’Neil,
"especially when you’ve got iconic brands that have built their reputation on being
an Australian company that continues to make things in Australia."
The Pacific Brands closures are expected to have big knock on effects, with
thousands of jobs in suppliers and related service industries under threat. Ms O’Neil
said closing the hosiery plant at Coolaroo, in Melbourne’s northern suburbs, would
impact heavily on local communities that were dependent on manufacturing.
The region has already lost more than its share of jobs in the economic slowdown,
with companies including Caterpillar, ABC Learning Centres, Ford and OneSteel
having shed staff.
The Australian Workers Union’s Cesar Melhem said: "Manufacturing is like a
ticking time bomb. Many companies are on a knife edge."
Most concern is centred on the car industry, where flagging sales have forced
production cuts and thousands of job losses.
Yesterday it was confirmed that another 225 jobs would go at Albury gearbox
factory Drivetrain Systems International.
Travel publisher Lonely Planet will also cut up to 40 staff from its Melbourne office,
while up to 90 more jobs could be lost at the stalled Southern Star observation
wheel.
Senator Carr warned that more bad news could be expected in the present
economic climate.
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28
Strategic Management 4
"We are in a position now to say that there are many, many companies that are
facing an acute liquidity crisis," he said, declining to name any of the companies.
"This will not be the last day in which we have to deal with very disappointing
news like this."
Ms Morphet said all worker entitlements at Pacific Brands would be met. She also
defended the company’s move against claims that it had abused Government
assistance — estimated by the clothing workers’ union at more than $15 million in
recent years.
She said the assistance had helped keep the industry working.The move to slash
jobs came as the company announced a net loss of $150 million for the December
half-year.
Almost 300 people will lose jobs at Coolaroo, with another 255 at the Holeproof
plant in Nunawading — many of them migrant women with poor prospects of
finding other work.
With other non-manufacturing cuts, including at the Hawthorn head office, up to
1000 people could lose jobs in Melbourne.
Arife Koksal, 36, a machine operator at Coolaroo for five years, said she was
shocked and upset. "We’ve got families to feed, mortgages," she said. Ms Koksal said
her chances of getting another job, especially in manufacturing, were slim.
Australian Industry Group Victorian director Tim Piper said the Pacific Brands
decision was a "big blow" to manufacturing.
"They’ve been a survivor in a pretty difficult business," he said. But amid the
difficulties in manufacturing, he said companies and unions were working more
closely to avoid job losses.
The latest round of job losses comes just weeks after BHP Billiton said it would lay
off more than 3000 Australian workers and after David Jones, Foster’s and CSR all
said hundreds of jobs would be axed. Responding to the Pacific Brands news,
Premier John Brumby blamed the world recession and the disappearance of export
markets.
"Japan is in depression, the UK economy is shrinking by 5%, the US economy is
shrinking by 3%," Mr Brumby said. "I have been saying for some time we will see
announcements of this type."
In Canberra, Opposition Leader Malcolm Turnbull used question time to taunt the
Government over the Pacific Brands decision, saying billions of dollars in fiscal
stimulus had failed to deliver jobs. "Prime Minister, how does your socks and
jocksled recovery look now, and how many more workers will lose their jobs
because of your economic incompetence?"
Prime Minister Kevin Rudd said that while the Government had an economic
strategy to see Australia through the crisis, the Coalition was using the crisis to
score cheap political points.
"It is almost as if each time job losses are announced in this country you can hear
the champagne corks pop in the Liberal and National parties’ party room," he said.
Source: The Age, http://bit.ly/olrUPK
Pacific Brands Case– Reading 19
29
PACIFIC BRANDS BOSS SUE MORPHET HIRES GUARD
BY STEPHEN DRILL news.com.au, March 01, 2009
Morphet hires 24-hour security guard protection for mansion follows fallout over
sacked workers
EMBATTLED Pacific Brands chief executive Sue Morphet has hired a 24-hour
security patrol to protect her mansion in Melbourne.
The Hawthorne home, which includes a tennis court, was being defended by a
security guard yesterday as the fallout from her decision to sack 1850 workers
continued.
The home was listed for sale on website realestate.com.au for more
than $2 million. It is believed Ms Morphet hired security because she was worried
angry workers would ransack her home after widespread sackings were announced
on Wednesday.
Ms Morphet, who accepted a $1.1 million pay rise last year, was
unavailable for comment.
But even her well-heeled Hawthorn neighbours had
turned on the head of the company, which controls household names such as
Bonds, Hard Yakka, Playtex and Dunlop.
A neighbour, who refused to be named, said Ms Morphet deserved all the grief she
was receiving.
"Go for it. She's accepted the big pay rises while giving all her workers the sack,"
the neighbour said.
Pacific Brands' directors were consulting each other yesterday as they considered a
request from Industry Minister, Kim Carr, to keep some or all of their factories
open.
Mr Carr met executives and unions on Friday in a last-ditch bid to help save
Australian jobs.
But when the Sunday Herald Sun rang chief financial officer Stephen Tierney and
director Dominique Fisher, yesterday they passed on inquiries to their high-profile
spin doctor to the stars, Sue Cato.
The public relations mogul, who has defended controversial photographer Bill
Henson, said there was no comment.
Business experts estimated Ms Cato would reap tens of thousands of dollars in fees.
Meanwhile, transport unions continued to put pressure on the company yesterday.
"We call on the company to do the right thing by Australian taxpayers, the
Government and the workers and work together to keep the jobs in Australia,"
national secretary of the Maritime Union of Australia, Paddy Crumlin, said.
Source: news.com.au, http://bit.ly/rkoLCb
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Strategic Management 4
4a. Exercise Question:
Do you think the reactions of workers and the public at large are justified?
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4b. Exercise Question:
What impact will this decision – and the way it was communicated – have
on the company’s ability to project the attributes and values that we saw at
the beginning of the case to its customers and employees?
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Pacific Brands Case– Reading 19
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4c. Exercise Question:
Has your view changed about the correctness of the decision to stop
manufacturing in Australia?
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4d. Exercise Question:
Could the CEO have handled the situation better?
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Strategic Management 4
Part 5: Pacific Brands in 2011 and beyond
Now let us look at an article as well as financial information describing the
company in 2011.
PACIFIC BRANDS CLIMBS ON BUYBACK
BLAIR SPEEDY reports in the The Australian August 24, 2011 1:29PM
PACIFIC Brands, the company behind clothing labels including Bonds, Holeproof and
King Gee, has reported a $132 million net loss for the past financial year, driven by write
downs on the value of its shoe and sportswear divisions.
The company booked one-off costs of $235m for the 12 months to June 30,
including $212m in writedowns on the value of its footwear, outerwear and sport
division as well as its Sleepmaker mattress and Dunlop foam divisions.
Excluding one-off items, net profit rose by 14.5 per cent to $103.4m while sales
were down 7.3 per cent to $1.615 billion.
Shares in Pacific Brands were up 6 cents, or 8.8 per cent, to 68c by early afternoon,
after the company also unveiled an on-market share buyback of up to 10 per cent of
its issued stock.
The benchmark S&P/ASX 200 index was down 0.2 per cent.
Chief executive Sue Morphet said the underwear and hosiery division produced an
11.4 per cent increase in earnings before interest, tax and amortisation to $111.3m.
The earnings lift for the division came despite an 8 per cent decline in sales due to
brand deletions and the loss of sales to discount department store Kmart, which had
demanded price reductions Ms Morphet said the company could not provide
without compromising quality.
The workwear division, which includes the King Gee and Yakka brands, reported a
19.3 per cent gain in EBITA to $49.9m, boosted by demand from the mining sector.
Homewares, which includes bedding brands Tontine and Sheridan, booked a 20 per
cent gain in EBITA to $40.4m, while the footwear-outerwear and sport division
EBITA collapsed 95 per cent to just $800,000, as sales fell 23.6 per cent as a result
of cool summer weather and the loss of sales to Kmart.
Earnings for the current financial year would be affected by ``weak retail conditions
marked by extremely cautious and value-conscious consumers, and intense industry
competition,'' as well as the loss of sales to Kmart.
Higher input costs including cotton prices, Chinese labour costs and energy would
also weigh on margins this year, Ms Morphet said, although the company had
already raised the price of some affected products in order to pass on the impact to
consumers.
"It has been a very challenging couple of years, and the next 12 months don't look
any easier," Ms Morphet said.
The company also announced up to 100 further job cuts as it integrates its Sydney
and Melbourne underwear divisions.
continue
Pacific Brands Case– Reading 19
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Ms Morphet said the company expects some of the affected staff to retain their
positions by relocating, but would not specify how many redundancies the company
expects to incur.
The job cuts follow the shedding of around 1800 manufacturing jobs and 850 other
staff at Pacbrands since 2009, when the company announced a restructuring plan to
outsource the bulk of its production to cheaper Asian manufacturers and sell off
underperforming businesses.
Source: The Australian http://bit.ly/pGZf06
5a. Exercise Question:
Why do you think the stock price went up although the company still
seems to face a difficult environment?
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Strategic Management 4
Here are the financials of 2010 in comparison to 2009.
Source: Annual Report 2010, http://bit.ly/pYNntR
Pacific Brands Case– Reading 19
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And here is the performance of the Pacific Brand stock compared to the
ASX since 2009.
Source: ASX. http://bit.ly/wC7m02
5b. Exercise Question:
Do you think that Pacific Brands has become a better-managed company in
the past couple of years under Sue Morphet?
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Strategic Management 4
5c. Exercise Question:
To what extent did the decisions that were made reflect ‘conventional
wisdom’ and commercial orthodoxy? What strategies counter to this
orthodoxy could have been adopted?
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Pacific Brands Case– Reading 19
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Here is an article about the state of the company in 2012.
PACIFIC BRANDS WARNS OF POOR SALES PERSISTING
Eli Greenblat reports in the The Sydney Morning Herald October 24, 2012
PACIFIC Brands has avoided the embarrassment of a ''second strike'' against its
remuneration report and a full spill of the board, as it warned there had been no change to
the poor trading environment that saw it crash to a $450 million loss last financial year.
New chief executive John Pollaers, who is only 50 days in the role at the embattled clothing
manufacturer, told investors at the company's annual meeting yesterday that year-to-date
underlying sales were down and that the trading environment remained challenging.
Mr Pollaers said there had been no change to the company's outlook for 2012-13 since the
release of its full-year results, when deteriorating conditions across its key markets triggered
more than $500 million in write-offs and restructuring charges.
''There has been no noticeable improvement in the operating environment so far this
year,'' Mr Pollaers said. ''Time will tell whether the latest interest rate cut has much
impact, but prudently our plans assume more of the same. Trading remains volatile, with
September down but October month-to-date in line with last year.''
Mr Pollaers said performance among retailers was mixed, and performance within Pacific
Brands' portfolio was also a mix of up and down. ''We've got some brands in our portfolio
performing and some that are a bit more of a challenge,'' he said.
The underwear division was up, with Bonds performing well but Rio and Holeproof
offsetting much of that growth. Workwear was down after a drop in economic activity
since March, and was showing no immediate signs of turning.
''As always, timing of the rollout of key contracts may impact the phasing of sales between
the halves.''
Mr Pollaers said it was still too early to say if Pacific Brands would make more writedowns or further restructuring.
''My sense is the company is in much better shape as a consequence of the decisions that
it's taken over the last five years,'' he said.
Investors have swallowed write-downs and charges of more than $1 billion since 2009,
when Pacific Brands had a near-death experience after the global financial crisis.
Shareholders overwhelmingly supported the remuneration report after last year
voting more than 50 per cent against the item and setting up a ''first strike'' for the
company. Almost 98 per cent of proxies were voted in favour of adopting the
remuneration report this year.
Source: SMH http://bit.ly/UoCc7b
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Strategic Management 4
5d. Exercise Question:
If you were the new CEO John Pollaers, what would you do to prepare for
the world in 2020, what major trends and discontinuities would you get it
to focus on? What are the implications for their current business model?
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Bring your answers to the class discussion in residential 4.
Pacific Brands Case– Reading 19
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