IN THE MONEY: Pacific Brands review may drive further divestments
Pacific Brands is focused on adopting “a more balanced” growth and disciplined cost agenda
Clothing and footwear business Pacific Brands has said it will consider selling more of its brands as it continues to find ways to drive a better company performance.
The Australian apparel group has been undertaking a restructuring and repositioning review of the business over the last two years in a bid to improve profitability, simplify the business and mitigate pressure. Addressing shareholders today (14 October), chairman Peter Bush, however, admitted that the company still has "some way to go".
"I wish I were standing here saying that there had been a miraculous bounce back in consumer confidence and that retail was roaring again. It simply isn't.
"We were taking all practical steps to drive better company performance. A great deal has been achieved in the last few years in terms of restructuring and repositioning our businesses, taking costs out and getting the right people into the right places."
Growth balance and discipline
Bush said the company is now focused on adopting "a more balanced" growth and disciplined cost agenda.
"We will continue to invest in key brands and drive cost reduction initiatives to mitigate earnings pressure. We are moving to a more decentralised organisation model which provides business units with more end-to-end accountability for performance and helping restore balance sheet strength."
In June, Pacific Brands announced a strategic review across the business. One early result of this review was the decision to divest its workwear business to Wesfarmers in a deal worth AUD180m.
The deal, the company said at the time, "simplifies and focuses" group strategy around "maximising the potential" of leading brands Bonds and Sheridan. It would also reduce exposure to the "challenging industrial market, and restore balance sheet strength to the company".
Bush told shareholders: "There will be more outcomes from the review and we will keep you informed. Suffice to say for now - we will continue to review portfolio rationalisation options as appropriate to further simplify the business and maximise shareholder value."
A month after announcing the review, CEO John Pollaers stepped down from his role. He was replaced by David Bortolussi, who has been with Pacific Brands for over five years.
"Our different views about the future for the company became clearer as the company's strategic review progressed," Bush said today. "David is well placed to lead the organisation."
Offering an update on the strategic review, Bortolussi said it is now "well progressed" and that the group's corporate priorities for the year ahead are clear.
The chief executive said the primary objective will be to restore balance sheet strength, primarily through achieving higher operating cash flow.
The next priority will be to "adopt a more balanced growth and disciplined cost agenda", he said, while continuing to invest in brands, particularly Bonds and Sheridan which "have the most potential in terms of category growth, retail expansion and international markets".
He added: "Thirdly, continue to move to a more decentralised organisation model to provide greater end-to-end accountability to operational management."
Finally, he reiterated Bush's point, that the company will continue to review and implement portfolio rationalisation options.
"The workwear divestment is a key element of this strategy, and we will continue to review other options with a view to simplifying the business and maximising shareholder value."
Reports by the Sydney Morning Herald suggests Pacific Brands has received informal offers for assets including Volley and Grosby shoes, part of the Brand Collective division.
In August, Pacific Brands revealed a mixed set of results. It moved to a net loss of AUD224.5m in the 12 months ended 30 June, primarily due to charges from the sale of its Wentworthville property.
Gross margin declined by 2.1 percentage points to 47% as a result of increased levels of promotional/clearance activity, but sales increased 3.8% to AUD1.32bn due to growth in underwear and Sheridan Tontine.
Bortolussi told shareholders: "Essentially, the higher cost but profitable growth in the retail part of our business, was not sufficient to offset a decline in the sales and margins in the traditional wholesale part of our business which is what we need to balance going forward. We need a sustainable wholesale business supplemented by growth in adjacent categories, retail and international."
Bortolussi said the outlook for fiscal 2015 is likely to "remain challenging", with variable market conditions likely to be unchanged.
As a result, the company said it gross margins are expected to be down due mainly to competitive and foreign exchange pressures, and EBIT is expected to fall by more than 10% in the first half of 2015. Sales, he said, are expected to be up due mainly to growth in retail and online.
However, he added: "The timing of the outcomes of the strategic review could potentially have a material impact on the outlook."
In concluding, the chief executive reiterated his priorities for the year ahead, which he said will involve reshaping the business, stabilising performance and laying down foundations for more sustainable growth.
"While your management team worked hard during the year and there were highlights, our results overall were far from acceptable and much work is required to improve performance," he said. "Looking ahead, consumer, trade and currency market conditions continue to be difficult, but our strategic and financial priorities for this year are very clear and will help us to take on these challenges.
"I personally feel ready for the challenge and I'm confident that the changes we need to make will make a difference going forward."
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