Bread and snack food manufacturer Goodman Fielder has announced it expects its earnings before interest and tax (EBIT) in the 2014 financial year to be approximately 10 to 15 per cent lower than the previously expected $180 million.
The Company's brands include Meadow Lea, Praise, White Wings, Pampas, Might Soft, Wonder White, Helga's, Vogel's (under license), Meadow Fresh and Irvines.
The Company said market conditions have changed since its interim result announcement on 12 February 2014, with trading condition in Australia and New Zealand deteriorating and that manufacturing and supply chain cost savings under its "Project Renaissance" have been delayed.
At its interim result in February 2014, the Company expected normalised EBIT for the 2014 financial year to broadly in line with the prior year, subject to market conditions remaining substantially as they were at that time.
Baking Division prices drop
Goodman Fielder said that although volumes increased in its Baking division in the third quarter, net average selling price (NAP) was lower than expected.
Additionally, approximately $10-15 million out of a total of around $32 million in the Company's "Project Renaissance" savings which were expected to be achieved in the 2014 financial year have been delayed until the 2015 financial year. Goodman Fielder said continuing reliability issues across the manufacturing and supply chain network had required the Company to invest to maintain customer service metrics, which has impacted earnings in the short term.
Grocery earnings lower than expected
The Company said third quarter earnings in the Grocery division were lower than expected due to increased competition impacting price and volume across the portfolio.
Fourth quarter earnings in Grocery are expected to be further impacted by difficult trading conditions and lower customer inventory levels.
New Zealand farmgate milk price increase impacts earnings
In its New Zealand dairy business division, a further increase in the farmgate milk price from NZ$8.30 to NZ$8.65 is expected to impact earnings in the short term. Goodman Fielder said it had notified customers of price increases, however there would be a time lag between increase in the raw milk price and cost recovery.
Asia Pacific business stable
Earnings expectations in the Asia Pacific business remain largely unchanged. Goodman Fielder said operational metrics in the Fiji Poultry business continued to improve normalised EBIT for the 2014 financial year for Asia Pacific is expected to increase on the prior year.
FY14 outlook
Given the deterioration of market conditions and the revised earnings guidance, Goodman Fielder said it would conduct a detailed analysis of the carrying value of its business in according to accounting standards. While that analysis was yet to be completed, the Company said it currently expects to record non-cash impairments, reflecting the deterioration in the trading outlook across its portfolio.
As a result of lower forecast earnings, the Company's net debt position at 30 June 2014 is not expected to reduce as previously anticipated. However, Goodman Fielder said its financial position "remains strong and the Company continues to operate comfortably within its debt covenants".
Management response
In response to the challenging conditions, Goodman Fielder said it had accelerated cost reduction programs across its business.
At its interim result, the Company had identified an additional $25 million in cost savings under "Project Renaissance" to be achieved by the 2016 financial year. The Company said it had accelerated those cost saving initiatives, primarily through headcount reduction in the fourth quarter of the 2014 financial year, and now expected to achieve the additional $25 million in cost savings by the 2015 financial year.
Cash restructuring costs related to redundancies are expected to be recorded as significant items in the 2014 financial year accounts.
