'Disappointing' slide for Burns Philp snack division

Graeme Hart

Australian food group Burns Philp reported a flat first-half operating profit as its snack foods arm staged a market share battle, but forecast the key unit would post 10 per cent annual earnings growth.

Burns Philp reported net profit of A$581.1 million ($637.2 million) for the six months to December 31, down 37 per cent from A$916.7 million a year ago when the result included gains from the sale of its herbs and spices arm and yeast and bakery ingredients business.

Burns Philp in December raised A$2.12 billion from spinning off the Goodman Fielder bakery, spreads and dairy business, in which it kept a 20 per cent stake, leaving snack foods as its only operating business.

It is also reviewing options for its snacks unit, which yesterday posted a 17.5 per cent slide in operating earnings as spending was boosted to recover a dip in the Uncle Tobys division's market share from usual levels of around 41-42 per cent.

"It is certainly down on where we expected it to be, so I would say it is pretty disappointing," said Grant Saligari, CommSec senior analyst, staples, of the snacks result.

Group earnings before interest, tax, depreciation and amortisation before one-off items edged just higher to A$191.4 million, from A$191.2 million a year ago.

Snack earnings fell to A$34.4 million from A$41.7 million.

Shares in Burns Philp, majority owned by billionaire Graeme Hart, closed down 0.9 per cent at A$1.07 in a wider market down 0.3 per cent.

Chief executive Tom Degnan said Burns Philp would introduce relaunched and new products in the second half of fiscal 2006 that would boost the snack division's annual earnings and drive growth.

Much of the market focus surrounding Burns Philp is on how it will spend the proceeds of the Goodman Fielder sale which could be further boosted by a snacks division divestment.

The company said last month it had appointed Deutsche Bank to advise on options for the snacks business, which includes the Uncle Tobys and Bluebird Foods divisions and which analysts estimate could be sold for around A$1.3 billion.

Burns Philp said it had about A$2.3 billion of cash on hand at the endof December and a net cash posi-tion of A$1.5 billion.

Degnan declined to say if the company was in talks with any potential targets.

"It is critical to know that there isn't a time frame so we can afford to be very patient."

Burns Philp has said its main focus for an acquisition was on Australia, New Zealand and North America, and that it could look beyond food if it found a target with a strong market position and stable cash flows.

A research report by Credit Suisse this month suggested that Burns Philp could make a A$6.5 billion acquisition, funded with 50 per cent equity, if it sold the snack foods business.

- REUTERS