Goodman and Wattie 1:3 bonus issue

Press, 26 February 1987, Page 26

Goodman and Wattie 1:3 bonus issue

Goodman Fielder, Ltd, has performed better than directors expected in its first half-year. The company has announced a one-for-three bonus issue, on June 12.

Shareholders in Wattie Industries, Ltd, will participate in the bonus issue if the proposed merger of Wattle’s and Goodman Fielder is not blockeed. This was announced by directors of Wattle’s yesterday.

An interim dividend of Austsc (NZ6c) is payable on June 5. This compares with a dividend of Aust4.sc by Fielder Gillespie Davis in the previous corresponding halfyear. Mr Pat Goodman, chairman of Wattie Industries, Ltd, and Goodman Fielder, Ltd, said if the merger was not in effect by June 12, Wattie shareholders would still receive the benefit of the bonus issue and if, for any reason, the merger did not proceed, Wattie Industries would, itself, proceed with a one-for-three bonus share issue and would pay a dividend equivalent to that which shareholders would have received under the merger.

Mr C. S. Lyon, managing director of Wattie Industries, said: “When reporting on our 1986 results, we indicated that we expected a much

stronger performance for Wattie and, in fact, projected a record profit of S7OM for the year to July. 1987. While full details of our result for the half year to January 31 are not yet available, it is clear that we are well on target towards achieving such a level for the full year.”

Profits from wholly owned operations were much stronger than last year.

Under a scheme of arrangement announced in November, Goodman Fielder is to issue seven of its shares for each six held in Wattie Industries. Shareholders -of Wattie approved the scheme on January 28 with the result that approval is now subject only to clearance by the New Zealand Commerce Commission and ratification by the New Zealand High Court

The Goodman Fielder directors say they expect the merger will be completed by the time of the bonus issue and that Wattie shareholders will participate.

The directors expect to maintain the present dividend rate of 10c a share on the expanded capital.

The bonus shares will be eligible for the final dividend in December.

The directors of Goodman Fielder say the maiden profit reflects a number of factors including the initial benefits achieved from rationalisation of the merged businesses and management structures, investment income, favourable movements in some raw materials prices and generally satisfactory trading conditions.

This is the first half-year report of the enlarged group.

For the six months ended December 31 sales were $Au5t774,168,000 (3NZ940.15M), which compares with sales in the last half of 1985 of SAustl7o,o7B,ooo by Fielder, Gillespie, Davis.

Other revenue in the latest half-year was $167,822,000 (SNZ2O3.BM), which included the revenue on disposal of non-current assets.

Consolidated operating profit before tax was $68,383,000 by group companies and $17,179,000 by associated companies. Consolidated operating profit at-

tributable to members of the company is $63,342,000 ($NZ76,922,000). This represents earnings per share of Austl7c (NZ2O.6C). • The total from extraordinary items and consolidated operating profit attributable to members of the company is $114,765,000. The directors say further benefits are expected from rationalisation, and a strong second half is expected. The margarine and oil group of Goodman Fielder has already secured a number of efficiencies as a result of the merger. Rationalisation of production facilities has led to reduced manufacturing and distribution costs. It is expected that most of the potential merger benefits will come to fruition in the second Six months of the financial year. The earnings contributions from the flour and starch divisions and the Papua New Guinea operations were each ahead of results for the corresponding period last year.

The rationalisation of the stockfeed manufacturing units in New South Wales has been completed and the rural division’s results are already reflecting the benefits of this programme. Prices for the group’s gluten exports continued to strengthen, demand exceeding the capacity .to supply. The Lane Cove maize starch manufacturing plant, now fully owned by the company, recorded improved sales and earnings to, December. The performance at Goodman Fielder New Zealand was ahead of budget for the half-year.

Qualify Bakers continued to perform well, the directors say. A SNZ7M bakery was recently opened in Wellington and will be capable of catering for an expanding market share in the Wellington region.

New Zealand Cereal Foods experienced some difficulties because of "overpriced domestic wheat and an overvalued New Zealand dollar.”

The recent deregulation of the New Zetland wheat and flour industries might cause short term dislocation, but should ensure a healthier industry in the medium term, the directors say.

Bonds (N.Z.) has achieved results well ahead of those for the same period last year. “This division has taken advantage of a swing to knitted fabrics by increasing capacity in its finishing plant which

has enabled it to meet the increased demand for its own fabric and to do more contract work for other manufacturers,” the directors say.

Goodman Pacific Capital Corporation made a solid contribution as did the pastoral division Hammond Irving and Brownlee. Gunn-Gollin was marginally behind expectation for the period.

The Australian bakeries market is intensely competitive, and typically the industry has suffered from excessive State Government regulation, particularly in New South Wales and Queensland, where price recovery had not kept pace with cost increases, the. directors say.

The Goodman Fielder Group is now the largest baker in Australia, and the financial results are appreciably better than recent experience.

“This is partly the result of external factors, such as the adoption by the New South Wales Government of a more realistic approach to pricing decisions. The group is optimistic that Queensland, where prices have fallen far behind other states, will show a similar improvement in the near future.

"However, the improvement in the group’s prospects stems largely from within the bakeries businesses. For example, in New South Wales, integration of some Fielders and Buttercup facilities has resited in substantial economies, and a number of large capital projects are under way which in time will provide the group with significant benefits.”

Further growth of the group is expected with recent bakery acquisitions in New South Wales, and Western Australia. Other possibilities are under investigation, the directors say.

With such improvements in the Australian operations, and technical and marketing links with its counterparts in New Zealand, the outlook for the Bakeries Group is more encouraging than it has been for many years, although the over-all return on investment in this group is not yet adequate. The gelatine group “which encompasses food stabilisers, flavours and other specialty ingredients activities as well as gelatine, has continued to grow with strong performances in some businesses. The Australian and New

Zealand operations continue to perform soundly with strong support from the overseas operations” direct manufacturing and marketing facilities and investments in joint ventures. A- number of major capital . expenditure programmes are now well advanced and the group is starting to realise the benefits of these investments. In consumer foods Goodmah/ Fielder’s leadership position in these markets is achieved through the White Wings and Eta Foods businesses. For White Wings, trading was buoyant at the beginning of the period, although conditions became more difficult in' the later months. Nevertheless, net sales and earnings were well ahead of the same period last year, assisted by sales of higher margin products and savings in ■ overheads.. Packaged flour performed well ahead of the first six months last year in a market whic>\expanded slightly, and wintSr- desserts and soup mixdr performed well. Cake mix sales were ahead of the

same period last year. In a competitive environment the catering services division turned in excellent results in their major product categories, the directors say. The international division performed well off a small base, assisted by the development of the Malaysian market and liaison with export personnel in the merged group. “With only one exception, our range of winter-oriented new products have sold well and new summer-oriented products have gained good acceptance. A vigorous new product programme is now being implemented which should result in further expansion in both general grocery and catering services segments .in the next few months." Eta Foods, Ltd, a division of the consumer foods group, continues to improve both sales and profit return, the directors say. Excellent sales have been achieved across most sectors of the business, with particular growth in the frozen food, mayonnaise, flour anifqiressingSmarkets. This has’been partly offset by disappointing

sales of Eta uncoated nuts in the snack foods category. “The difficulty facing Eta and many other snack-food manufacturers are the wide choice of snack-food products now on the market, strong competition and, because of the depreciated Australian dollar and climatic factors, very significant increases in the price of raw materials,” the directors say. Profit growth has been further enhanced with rationalisation of the frozen foods business, and improved factory operating efficiencies in the grocery products division. Goodman Fielder has acquired from the Pillsbury Company the outstanding 50 per cent shareholding in Eta Foods. During the period, the corporate treasury function was established and considerable progress made towards integrating the company’s treasury activities. “Most important, revised standard borrowing documentation was agreed with the company’s major bankers and restructuring of corporate borrowings initiated. “One result is the reduction in the percentage of secured

borrowings to total assets which fell from nearly 17 per cent at June 30, 1986, to under 10 per cent at December 31, 1986. “In addition, this has facilitated the company’s first security issue (promissory notes) in the Australian capital markets. The first issue under the facility on February 17, 1987, was achieved at a zero margin over the bank bill rate,” the directors say. Liabilities represented 55 per cent of total assets of sAustl.76 billion (5NZ2.137 billion) at December 31.