Australian food group Goodman Fielder, which has made losses in its last two financial years, said today (22 November) it had secured a "milestone" agreement on prices and recovering input costs.
MD Chris Delaney said Goodman Fielder had enjoyed an "improved dialogue" with its retail customers in recent weeks and had struck agreements that would help its business generate "more acceptable earnings".
"We have worked hard to deliver an improved level of alignment and engagement with our retail partners, particularly in their recognition of the costs involved in Goodman Fielder continuing to reliably supply fresh bread to destinations around Australia," Delaney said.
The company, which sells brands including Meadow Lea and White Wings, had agreed price increases and on recovering higher commodity costs affecting both its bakery and grocery businesses.
"This is another important milestone in restoring more acceptable earnings, particularly in our bakery business," Delaney told Goodman Fielder shareholders at the company's AGM.
Manufacturers, particularly those that use grains, are facing pressure on their commodity bill after severe weather in key producing countries like the US and Russia.
Goodman Fielder's success in securing price increases follows similar deals by local rival George Weston Foods, which is owned by Associated British Foods. Earlier this month, ABF finance director John Bason told just-food the company secured price increases on its bread products in Australia, a market the group described as "a difficult retail and competitor environment".
Australia is a market in which two retailers, Woolworths Ltd and Coles, account for almost 80% of sales. Speaking to just-food in September, Coles MD Ian McLeod said suppliers would in the past demand price increases "with no real justification". Now, he said, Coles would need to be convinced price hikes were necessary.
Delaney, meanwhile, is looking at other ways to improve Goodman Fielder's profitability. The company has sold an oils business and has plans to offload its milling operations in New Zealand. In June, Goodman Fielder announced it would close three bakery sites. Once they are closed, Goodman Fielder will have 45 plants but it wants to have less than 35 by 2015.
The restructuring plan aims to save Goodman Fielder A$100m (US$103.7m) and Delaney told shareholders the programme was "on track".
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MEDIA RELEASE
22 November 2012
Goodman Fielder strategy remains on track
Goodman Fielder's strategy to restore sustainable earnings growth by refocusing its business and achieving $100 million in annualised savings by 2015 remains on track, Managing Director, Chris Delaney said today.
Addressing shareholders at the company's Annual General Meeting in Sydney, Mr Delaney said he was pleased with the company's progress in targeting operational efficiencies to enable the company to refocus its investment in its core categories.
"Our identified cost savings through Project Renaissance are proceeding as planned and we are also well advanced on key internal projects to improve our operational effectiveness," he said.
"I am also pleased to report continued progress in our dialogue with our key retailing partners in Australia/New Zealand. We have worked hard to deliver an improved level of alignment and engagement with our retail partners, particularly in their recognition of the costs involved in Goodman Fielder continuing to reliably supply fresh bread to destinations around Australia."
Mr Delaney said this improved dialogue had resulted in agreed price increases being implemented across Goodman Fielder's Bakery category to reflect a 'cost to serve' model which had been revised and collaboratively re-designed over the past year. In addition, Goodman
Fielder had reached agreement on the recovery of higher input costs in both the Bakery and Grocery businesses.
"This is another important milestone in restoring more acceptable earnings, particularly in our Bakery business."
Mr Delaney said the company's priorities for this financial year included continued cost base reduction and portfolio prioritisation to enable the company to restore sustainable capital and marketing expenditure to improve reliability and quality in its core categories.
He said the company would also progress its strategy to drive further innovation across its core branded portfolio and commence work to identify new revenue streams outside of supermarket channels, including artisan bread and food service channels and by further developing its Asian capability.
"While trading conditions continue to be highly competitive, I am confident that the progress we have made in establishing a more sustainable earnings base, together with a stronger balance sheet, will mean our competitive position will continue to improve," he said.
