Goodman Fielder pledges big cost cuts

By DITA DE BONI

Transtasman food concern Goodman Fielder is counting on a new chairman and a high-profile board member - as well as a strategic review now under way - to reward long-suffering shareholders.

The company says restructuring will slash up to $A50 million in costs each year for the next three years.

At the annual general meeting in Sydney on Friday, both new chairman Jon Peterson and chief executive David Hearn took pains to impress on shareholders and analysts that no division in the company's sprawling dominion would be spared. Recent restructuring in milling and baking was but a sign of things to come.

New Zealand operations, which continue to generate a disproportionate amount of the company's wealth, would also be further rationalised if necessary, they said.

Review findings will not be released until early next year.

Goodman Fielder reported an after-tax profit of $A130.9 million in the year to June 30, 2000, a 24.2 per cent improvement. Margins hit an alltime high of 8.1 per cent of sales, coming back strongly after the 1999 slump to 6.4 per cent, but only marginally better than the 8 per cent of 1998.

In New Zealand, where the company extracts 25 per cent of its profit from 13 per cent of its assets, market share in bread and salty snacks grew, while its slice of the lunchbox category, including fruit bars, dipped against competition from Kelloggs.

All divisions except gelatin experienced a record year, Mr Hearn said.

The variable fortunes of gelatin will continue to affect results into the present financial year, with its first half expected to come in under last year's first six-month result of $A67.9 million.

But Mr Hearn says gelatin prices in the Northern Hemisphere, where the operation has seen the bulk of its margins squeezed, have recovered, and full-year earnings next year will exceed those of 1999-2000.

Shareholders were promised that the company had turned a corner.

Some disgruntled stockholders responded by accusing the company of once more stalling them with promises.

But several analysts were heartened by the company's tone, which seemed to back claims that an action plan would improve operating performance and shareholder return.

Some were also buoyed by an ABN Ambro report ranking Goodman Fielder third of all local equities for relative earnings certainty.

Mr Hearn later told the Business Herald that while Goodman Fielder was not quite top of the popularity stakes yet with analysts, it had benefited from its own efforts and the fact that some were shying away from high-risk investments, such as e-stocks.

One analyst, who did not want to be named, said the appointment of a new board member - Catherine Livingstone - was also a sign the company was on the right track. Ms Livingstone, described as a "woman of action," is the ex-managing director of bionic-ear maker Cochlear and was appointed to the Telstra board of directors as Goodman Fielder's annual general meeting churned to its conclusion.

Mr Peterson, who was elected to the helm of Goodman Fielder in April 2000, told shareholders the company was now in an "immensely powerful market and financial situation, and as your new chairman, I want to use my experience to help ensure this obvious potential is translated as quickly as possible into shareholder value."

The company had recently stepped up restructuring, and in the past year had sold its European businesses, its poultry division, and other "non-core" assets, as well as very recent rationalisation of milling and baking, which saw its New Zealand operations reduced and more than 150 workers laid off, followed by more redundancies in Australia.

But "the board recognise that recent initiatives are not yet big or fast enough," said Mr Hearn.

"More of the same is not going to be good enough."

ABN Ambro Sydney analyst David Cook said expectations were that the company's ingredients - primarily gelatin - division would be first to be sold.

In New Zealand, the ingredients division employs around 50 people in Christchurch, and supplies almost 100 per cent of the domestic gelatin requirement, mostly to other large food manufacturers such as Arnott's and Nestle.

But Mr Hearn refused to comment on the likelihood that gelatin would be hived off, pointing to the recovery of prices in the Northern Hemisphere.

He expected the division's performance to pick up, but stressed: "There are no sacred cows in this business."

Overall, he said the aim of the strategic review was to simplify the business, make Goodman Fielder more customer focused, and look closely at all assets and make them work harder.

He would not be more specific.

ABNs Mr Cook said that overall the company's comments at the meeting were a pleasant surprise.

The changes might just cut deep enough to allow the company to more fully realise its potential.

Goodman Fielder shares dropped 3c to close at $1.60 in New Zealand on Friday.