Results Presentation
for the period ended 30 June 2004
Paul Moore, Chief Executive Officer
31 August 2004
Important Notice
The IPO of the Pacific Brands business involved the incorporation of the newly listed
Pacific Brands Limited (“the Company”), a company with no financial history. On 6 April
2004, Pacific Brands Limited, through its 100% owned controlled entity, Pacific Brands
(Australia) Pty Ltd, acquired the Pacific Brands business from its former owners.
The statutory accounts prepared for the Company and its controlled entities and
appearing in Appendix 4 (Preliminary Final Report) lodged with the ASX, only includes
the performance of the Company and its controlled entities since the date of the
Company’s incorporation on 12 December 2003, with trading commencing on 6 April
2004 through to 30 June 2004.
However, to ensure that investors and other interested parties are able to compare
the Company’s earnings with those appearing in the Company’s Prospectus
(dated 1 March 2004), the following presentation contains pro-forma results for the year
ended 30 June 2004. The pro-forma results reflect the Company’s earnings had it been
an entity with the same corporate and capital structure for the full year ended 30 June
2004.
2
Results Highlights
Achieving
prospectus
forecast
Strong earnings
growth
Delivering robust
cash flows
o
o
o
o
FY04 EBITA
á
2.8%
FY04 NPATA
á
8.7%
FY04 NPAT
á
15.6%
Statutory NPAT
á
43.9%
o FY04 EBITA á 22.0% on FY03
o FY04 EBITA margin á from 8.5% (FY03) to 10.1%
o Australian sales á 4.7% on FY03
o Operating cash flow á 32.9% on FY03
o Net debt as at 30 June 2004 of $394.3 million down from
$466.5 million at 31 December 2003
Increasing
shareholder
returns
o FY04 final dividend for approximate 3 month period of 3.5 cents
per share versus prospectus of 3.0 cents per share
3
Group Structure
Pacific Brands
Underwear & Hosiery
o Underwear
o Intimate apparel
(eg bras)
o Hosiery
o Socks
Outerwear & Sport
o Casual outerwear
o Work outerwear
o Sports outerwear
and footwear
o Sporting equipment
and hardgoods
Home Comfort
o Mattresses and
beds
o Bedding
accessories
(eg pillows)
Footwear
o Footwear
• casual
• comfort
• fashion
o Foam
o Carpet underlay
4
Strategic Overview
Brand
development
and category
growth
Brave New
Way
Strategic
acquisitions
Strong earnings and robust cashflows underpinning shareholder returns
5
Brand Development Strategy - Update
o Brand strategy is delivering improvements in margin and market share
o FY04 double-digit sales growth in key brands
– Bonds, Everlast, Holeproof, Hush Puppies, Stubbies, Tontine
– Growth in “like” categories as a result of market positioning
o Significantly increased advertising spend á 37% on FY03
o Continued focus on elimination of unbranded / unprofitable sales
6
Brand Development - Advertising
o Focus on key brands – use of Australian personalities as “ambassadors”
7
Brand Development - Bonds case study
1999
2001
2003
o
o
Increased advertising
o
o
Australia’s leading underwear
brand
Product innovation
(eg Women’s hipsters)
o
Significant sales increase
Contemporary branding
o
Margin improvement
o
Highest consumer awareness
Bonds
considered a
mature,
mass-market
brand,
focused on
men’s
underwear
o
2000
2002
2004
o
Supermodel Sarah
O’Hare announced as
Bonds ambassador
o
o
o
Bonds supplies
approx. 1m items of
clothing to Sydney
Olympic Games
volunteers
Tennis player
Pat Rafter
announced as
an ambassador
for the brand
Brand
extension into
contemporary
outerwear and
emerging
export
opportunities
(UK, US)
8
Brand Development - Holeproof Case Study
2001
2002
2003
o
o
o
o
Holeproof considered
conservative and lacking
fashionability
Had been known as ‘cheeky’
and ‘irreverant’
Brands and product range
had been neglected
o
Overhaul of sourcing
- local manufacturing
o
Significant management
changes
- new GM
o
o
Change to ‘go to market’
structure
o
2004
o
New brand campaigns
Brave New Way
- product development
and introduction rules
- product sourcing
- reduction in SKUs
o
Increased advertising
spend
o
Double-digit sales
growth
Focus on core brands
- Underdaks
- Antz Pantz
- Explorer
- Rio
o
Significant margin
improvement
o
Overseas expansion Love Kylie
Exit other business
9
Brave New Way - Update
Improved margins / reduced complexity through:
o Lowering costs in the supply chain
– product development strategy
– product sourcing
– distribution and customer interface
– inventory management
o Eliminating duplication in financial, IT and administration
(shared services)
10
Strategic Acquisitions - Update
Sara Lee Apparel
Australasia
March 2001
Clarks (childrens)
September 2000
2000
2001
Hush Puppies
September 2000
Kolotex
August 2003
2002
2003
Sachi
June 2003
o Fragmented industry presents opportunities for further bolt-on
acquisitions
o Acquisition criteria
– brand potential
– strategic fit
– ability to extract synergies / utilise existing infrastructure
o Continually investigating acquisition opportunities
11
Stephen Tierney, Chief Financial Officer
Group Financial Results
12
Key Group Financials
Year ended 30 June (A$ million)
Adjusted
Actual
2003
Prospectus
2004
Pro-forma
Actual
2004
% change
03A – 04A
% change
Prospectus04A
1,489.1
1,563.1
1,535.1
á 3.1%
â 1.8%
EBITDA
143.3
167.6
171.6
á 19.7%
á 2.4%
EBITA
127.2
151.0
155.2
á 22.0%
á 2.8%
EBITA margin
8.5%
9.7%
10.1%
NPAT (pre goodwill amortisation)
81.3
88.4
á 8.7%
NPAT (post goodwill amortisation)
41.0
47.4
á 15.6%
EPS (pre goodwill amortisation) (cents)
16.2
17.6
á 8.6%
EPS (post goodwill amortisation) (cents)
8.2
9.4
á 14.6%
DPS (cents) 1
3.0
3.5
á 16.7%
Sales revenue
Note:
1. Final year dividend for period 6 April 2004 to 30 June 2004
o
o
EBITA á 22%
EBITA Margin á from 8.5% to 10.1%
13
Key Drivers of Result
o Sales growth of 3.1% over FY03 influenced by:
– Double digit growth in key “make-over” brands
– FY04 Australian sales up 4.7% on FY03
– Impact of Outerwear & Sport
• Management and supply issues at KingGee
• Deteriorating sporting equipment and hard goods markets
– Continued elimination of unprofitable / unbranded sales
14
Key Drivers of Result - continued
o EBITA growth of 22% over FY03 influenced by:
– Strong earnings growth in Underwear & Hosiery
– Margin improvement through focus on branded product sales
– Successful integration of Kolotex / Sachi acquisitions
– Brave New Way operational efficiencies
15
Summary Statement of Cash Flow
Year ended 30 June (A$ million)
Adjusted
Actual
2003
Prospectus
2004
Pro-forma
Actual
2004
% change
03A – 04A
% change
Prospectus
– 04A
EBITDA
143.3
167.6
171.6
á 19.7%
á 2.4%
Net capital expenditure
(11.6)
(19.5)
(18.4)
á 58.6%
â 5.6%
(2.8)
17.1
18.1
128.9
165.2
171.3
Net borrowing costs
(31.7)
(29.8)
â 6.0%
Income taxes paid
(30.3)
(31.2)
á 3.0%
Net operating cash flow
103.2
110.3
á 6.9%
Movement in other operating net assets
Operating cash flow
á 5.8%
á 32.9%
á 3.7%
o Containment of working capital
o Minimal capital expenditure
16
Summary Balance Sheet
(A$ million)
Pro-forma
31 December 2003
Actual
30 June 2004
Working capital
339.1
304.5
Property, plant and equipment
176.6
171.9
1,181.8
1,199.8
(47.6)
(48.0)
1,649.9
1,628.2
466.5
394.3
1,183.4
1,233.9
39.4%
32.0%
Intangibles
Other
Total capital employed
Net debt
Equity
Net debt / equity (%)
o
o
Significant debt reduction
Major investment in working capital
17
Working Capital
(A$ million)
Actual
30 June 2003
Prospectus
30 June 2004
Actual
30 June 2004
Trade Receivables
141.2
162.6
161.6
Inventories
280.5
258.0
253.6
Trade Creditors
(99.3)
(114.4)
(110.7)
Working Capital
322.4
306.2
304.5
Sales Revenue
1,489.1
1,563.1
1,535.1
21.7%
19.6%
19.8%
Working Capital to sales
18
Financial Leverage
Prospectus
2004
Pro-forma
Actual
2004
Interest cover
4.6x
5.0x
Net debt / EBITDA
2.8x
2.3x
1
Notes:
1. Interest cover calculated as EBITA / net borrowing expenses
o Net debt as at 31 December 2003 (proforma) of $466.5 million
reduced to $394.3 million at 30 June 2004
o Net debt to equity of 39.4% (proforma as at 31 December 2003)
reduced to 32.0% at 30 June 2004
19
Final Dividend
o Final dividend of 3.5 cents per share
(16.7% above prospectus forecast)
– Record date: 10 September
– Payment date: 30 September
o 100% franking for Australian shareholders
20
Statutory Result
Period 6 April 2004 to 30 June 2004
(A$ million)
EBITA
NPATA
NPAT
Prospectus
estimate
34.6
18.3
8.2
Actual
38.0
22.1
11.8
% change
Prospectus Actual
á 9.8%
á 20.8%
á 43.9%
o Strong Q4 result
o Retail conditions
o Inventory management
21
Paul Moore, Chief Executive Officer
Financial Results by Operating Group
22
Underwear & Hosiery
Year ended 30 June (A$m)
Adjusted
Actual
2003
% change
2003A-04A
667.2
á 9.0%
66.9
90.3
á 35.0%
10.9%
13.5%
Sales
612.0
EBITA
EBITA margin (%)
Prospectus
2004
Pro-forma
Actual
2004
671.3
Key drivers of result
o Double digit sales growth in Bonds and Holeproof
– Brand positioning, increased brand spend and marketing support
o Margin improvement through
– Balanced mix of local manufacturing and import sourcing
– Successful rationalisation of hosiery operations through integration of Kolotex
acquisition
– Operational efficiencies through Brave New Way complexity reduction program
23
Outerwear & Sport
Year ended 30 June (A$m)
Adjusted
Actual
2003
Pro-forma
Actual 2004
% change
2003A-04A
313.8
â 2.8%
30.6
26.4
â 13.7%
9.5%
8.4%
Sales
322.8
EBITA
EBITA margin (%)
Prospectus
2004
327.1
Key drivers of result
o Significant elimination of unprofitable sales
o Impact of late Winter
o Management and supply issues at KingGee
o Market conditions in sporting equipment and hard goods categories
o Double digit sales growth in Everlast and Stubbies
24
Home Comfort
Year ended 30 June (A$m)
Adjusted
Actual
2003
Pro-forma
Actual 2004
% change
2003A-04A
294.7
â 0.3%
24.4
27.7
á 13.5%
8.3%
9.4%
Sales
295.5
EBITA
EBITA margin (%)
Prospectus
2004
305.0
Key drivers of result
o Double digit sales growth in Tontine
o Improvement in bedding margins through market refocus
o Development of new foam products
o Solid performance in carpet underlay category
25
Footwear
Year ended 30 June (A$m)
Adjusted
Actual
2003
Pro-forma
Actual 2004
% change
2003A-04A
228.9
á 1.9%
17.0
20.4
á 20.0%
7.6%
8.9%
Sales
224.7
EBITA
EBITA margin (%)
Prospectus
2004
225.2
Key drivers of result
o Strong sales growth in Hush Puppies and Grosby
o Increased advertising and marketing support
o Integration of Sachi acquisition
o Continued focus on eliminating unprofitable / unbranded sales
26
Trading Update and Outlook
27
Trading Update and Outlook
o Impact of market conditions
•
Consumer confidence
•
Strong but volatile AUD
•
Some price deflation but brand strategy working
o Confident of meeting 2005 prospectus forecasts
o Key growth drivers in FY05:
•
natural market growth plus market share gains, brand extension into
other categories
•
continued focus on branded product sales, supported by increasing
advertising and marketing expenditure
•
actively pursuing acquisitions
28
Questions
29