RNS No 1598n
PACIFIC DUNLOP LIMITED
27th August 1998
PART 1
1997/98 Pacific Dunlop Results in Brief
Pacific Dunlop reports a pre-abnormals profit of $181 million,
compared with $176 million in the previous year, an increase of
3 per cent.
* Sales increased by 3.5 per cent to $5.98 billion.
* Previously foreshadowed abnormal losses of $156 million.
* Profit after abnormals of $24.8 million.
* Earnings per share before abnormals up 2.3 per cent to 17.6 cents.
* Final dividend of 7.0 cents making 14.0 cents for the year
(previous year 14.0 cents). The final dividend will be unfranked.
Pacific Dunlop 1997/98 Results Summary
Pacific Dunlop today announced a profit attributable to shareholders before
abnormals of $180.8 million for the year ended June 30, 1998, an increase of
3 per cent over the previous year's $175.6 million.
As foreshadowed, abnormal losses of $156 million were recorded, reflecting the
sale of GNB Technologies, subject to regulatory approvals, and the contingent
settlement of U.S. Telectronics litigation. Accordingly, profit after
abnormals was $24.8 million.
Sales increased by 3.5 per cent to $5.98 billion.
Directors have declared a final divided of 7.0 cents a share, which will be
unfranked (1997, 7.0 cents per share, 60 per cent franked). This maintains a
dividend of 14.0 cents for the full year. The dividend will be paid on 4
November, 1998, to shareholders registered at the close of business on 5
October, 1998.
During the year, the communications business of the Pacific Dunlop Cables Group
was sold for $23 million and, since year end, agreement has been entered into
for the sale of the GNB Technologies battery and smelting operations for US$550
million subject to regulatory approvals in the U.S. Australia and New Zealand.
A more rigorous commitment to active portfolio management will see a reduction
in operating divisions from nine in 1995 to five post the sale of GNB, with the
Company becoming more focused on consumer products manufacturing, marketing and
distribution.
Chairman's Comment
The Chairman of Pacific Dunlop, Mr John Ralph, said the year had seen
significant progress in repositioning the company.
"Perhaps the most important change during the year has been a much stronger
demonstration of the Company's commitment to active portfolio management.
"The change process is reshaping Pacific Dunlop for the globalised and more
competitive trading environment in which businesses have to operate and in doing
so chart a long-term course for the Company's future growth. At the same time,
action is being taken to lift short-term performance and with it the returns and
value for shareholders.
"Progress had already been made in reducing costs, improving efficiency and
lifting productivity through rationalisation in all business units. The Company
is also evaluating future growth prospects of each business and the ability of
each to generate acceptable returns and profitable growth in the long term.
"This assessment now governs investment priorities for all businesses.
"The sale of GNB Technologies and the communications cables operations disposes
of two financially underperforming businesses. As a result, we will have a
better performing asset base and one which is less diversified.
"Another important and positive change has been the resolution, subject to
certain court approvals, of nearly all outstanding litigation related to the
Accufix pacing lead. The main agreement reached in July covers the claims made
in the U.S. and follows earlier settlements in Canada and Australia. All
settlements have been reached without any admission of liability.
"These developments are all helpful in clearing the way for better results
ahead. The reshaping of Pacific Dunlop, however, is based primarily on the
recognition that the exciting potential of Ansell will be our main source of
growth and earnings internationally.
"The excellent Ansell result offset disappointing returns from the
domestic-based businesses, whose markets were mostly characterised by lower
levels of demand, stronger import competition as a result of the Asian crisis
and tighter margins.
"We are confident, however, of improved Divisional performance in the current
year which will lead to a stronger earnings base and improved shareholder
value."
Operations
The Managing Director, Mr Rod Chadwick, made the following comments on
operations:
"Ansell has grasped the opportunity to become a truly global business.
"It had an outstanding year, strengthening its position in all markets,
particularly the U.S., and passing $1 billion in sales for the first time. It
also increased the capacity of its principal manufacturing facilities in
South-East Asia and India and gained a strong foothold in new markets in Latin
and South America, Eastern Europe, South Africa and the Middle East.
"Ansell is and will continue to be Pacific Dunlop's major global growth vehicle
for the future. Ansell's prospects for longer term growth are outstanding. It
has strong market positions in its principal product categories in most
geographical regions; it is in strong, high volume growth markets where its
products are clearly regarded as world leaders; it has opportunities for growth
in underdeveloped markets; and it has leading edge proprietary technology in
products and processes. In short, it possesses a unique combination of
technology, low-cost production and marketing power which has already
given its products world leadership and sales in more than 100 countries.
"Pacific Brands responded to a very difficult second half environment with
aggressive profit improvement programs which are expected to drive better
results in the current year through further restructuring, increased shared
services and a much sharper focus on logistics and brands and less reliance
on manufacturing.
"South Pacific Tyres has a major challenge to regain market share lost in
Australia in original equipment supply and the replacement tyre market which
led to an unsatisfactory result. Market share should be recaptured as a result
of new original equipment contracts and aggressive sales and marketing
activities. We are confident this group will have a stronger result this year.
"A new leadership team at Pacific Distribution, appointed after continuing
poor results during the year, is driving dramatic change in the automotive and
electrical distribution businesses in Australia and New Zealand in customer
service, revenue growth, cost reduction and margin improvement.
"Significant increases in costs associated with commissioning of new plants,
the temporary closure of our Indonesian factory and the closure of the
Geebung, Queensland plant and increased raw material costs contributed to
a severe reduction in earnings for the Pacific Dunlop Cables Group.
However, we believe the Group is now the lowest cost producer across its
product range in Australia and is well placed for improvement.
"GNB Technologies had an improved year with strong gains in operating
profit and margins despite the continuing fierce competition in the North
American automotive battery industry. Since the year end, agreements have
been entered into for the sale of GNB Technologies for US$550 million.
"A number of Company-wide initiatives put in place during the year are also
expected to contribute to improved performance and profitability in our
domestic businesses this year and beyond.
"They include rationalisation of manufacturing into fewer, larger, more
automated facilities, an accelerated and relentless drive for cost reduction
and improved efficiency, more effective back office functions and a much
sharper focus on logistics and brands.
"Further, a recognition of the need for new skills in many areas led to new
senior appointments of highly-credentialled and well-regarded executives to head
Pacific Distribution, the Cables Group, Global Manufacturing, Accounting,
Procurement and IT.
"We expect all divisions to do better this year, although clearly it will not be
an easy year if economic activity continues to contract.
Mr Chadwick made the following comments about each Division:
Ansell
1998 1997 Change
$M $M %
Operating Revenue 1078 856 26
Operating Profit 162 111 46
Profit Margin 15.0 13.0 15
Assets Employed 831 723 15
Ansell had an exceptional year. Revenue exceeded $1 billion for the first time
as it completed its transformation into a truly global organisation selling into
more than 100 countries. Ansell is now the world's largest marketer and
manufacturer of latex and synthetic barrier protective products.
As part of its globalisation strategy, Ansell's Corporate Head Office was moved
in August, 1997, from Glen Waverley, Victoria, to Red Bank, New Jersey, on the
east coast of the U.S. North America now accounts for approximately 55 per cent
of Ansell's worldwide turnover.
Ansell's Protective Products Division recorded major improvements, particularly
in Europe and North America. The Healthcare Division also performed well ahead
of last year, with its medical glove business in the U.S. outstanding.
Both Divisions achieved records in safety, sales, margins, working capital
management and manufacturing performance.
Ansell launched a number of world-first new products, including the first
totally synthetic polyurethane glove range, "Elite" and "Ovation", reflecting
its commitment to innovation and its focus on research and development.
Ansell is now clearly the principal growth vehicle for the company. Significant
capital continues to be invested to achieve our stated objectives - aggressive
development of powder free medical glove capacity; aggressive pursuit of the
world market for 'critical environment' gloves; and to be the lowest cost
producer across the entire product range.
To that end, two acquisitions totalling more than $60 million have been
announced recently in Thailand and India - the Suretex Group and Kemwell Inc. -
and a further $50 million is being invested in new production capacity in plants
in Thailand, Malaysia, Sri Lanka and the U.S. These capital expansions are
expected to generate additional annual sales of more than $150 million within
the next three years. Further significant investment will be made in the
current year.
Pacific Brands
1998 1997 Change
$M $M %
Operating Revenue 1177 1214 (3)
0perating Profit 94 105 (10)
Profit Margin 6.0 8.6 (7)
Assets Employed 618 624 (1)
Pacific Brands responded to a very difficult second half environment with
aggressive profit improvement programs which are expected to drive better
results in the current year.
Diminishing consumer confidence and the negative impact of the devaluation of
the Australian dollar contributed to the lowest second half sales for the past
four years.
While this difficult environment affected the total Group, it had its greatest
impact on the Clothing and Household Products Divisions.
Both of these Divisions have very strong improvement plans in place in sales,
manufacturing and cost reduction.
These plans include significant further restructuring into fewer, larger, more
automated facilities, shared services for back office functions such as
accounting and IT and a much sharper focus on logistics and brands.
During the year, a substantial number of facilities were closed or rationalised.
This program is continuing.
Our overseas factories - particularly in China - are now recognised as among
the best in their industries in the world. Contracts to supply leading
international clothing brands such as Lane Bryant underscore our quality and
productivity.
To that end, we are increasing our supply of clothing and footwear from these
Chinese factories to the U.S., U.K, Europe, India and South Africa. Export
sales of $115 million were recorded during the year, and we expect a significant
growth over the years ahead.
On a note of special importance to Pacific Dunlop, Chesty Bond turned 60
this year. Much will be seen and heard of this Australian icon in 1998 and in
the years ahead as he leads the Company's Team Millennium sponsorship of
the Sydney 2000 Olympic Games. Bonds is just one of Pacific Brands' stable
of great and enduring brands which includes Berlei, Tontine, Dunlop, Slazenger,
Maxfli, Candy, Holeproof and Sleepmaker.
South Pacific Tyres
1998 1997 Change
$M $M %
Operating Revenue 1049 1075 (2)
Operating Profit 79 92 (14)
Profit Margin 7.5 8.6 (13)
Assets Employed 658 664 (1)
South Pacific Tyres had a disappointing year with decreases in sales margins and
earnings partly offset by a reduction in operating costs.
Continuing strong sales of imported motor vehicles, particularly from Korea, an
increase in foreign tyre imports as a result of the Asian slowdown and a fall in
market share in original equipment supply and the domestic passenger replacement
tyre market contributed to the result.
These factors overshadowed improvements made by the Division over the year in
safety, waste reduction and working capital management.
The major challenge for South Pacific Tyres is to regain market share lost in
Australia. Many of the steps put in place during the year will help achieve
that aim in all market segments. Already, South Pacific Tyres has secured sales
volume increases for the current financial year based on new contracts with
Ford, General Motors and Mitsubishi.
In the replacement tyre market, sales and marketing activities are being
increased, with a new Dunlop brand positioning campaign, aggressive retail
promotions through Beaurepaire for Tyres and independent dealers and a number of
high-profile new product launches being implemented in the current year.
These programs are being supplemented by a strong focus on reducing costs across
the business. We are confident this will contribute to a stronger result in the
current year.
A pleasing aspect during 1998 was the continued growth in exports from our
Australian and New Zealand factories to 44 countries around the world, including
the U.S., the U.K. and Europe, reflecting the quality and competitiveness of the
product. Exports were up more than 20 per cent, exceeding $80 million for the
first time, with further growth expected in the current year.
Pacific Distribution
1998 1997 Change
$M $M %
Operating Revenue 1439 1454 (1)
Operating Profit 62 79 (21)
Profit Margin 4.3 5.4 (20)
Assets Employed 572 581 (2)
Continued poor results during the year led to a far-reaching management
restructure, with a number of new senior appointments throughout Pacific
Distribution.
In June, Mr Joseph Farnik, a former executive of The Shell Company with a
first-class international track record in distribution, procurement and
marketing, was appointed Managing Director. New General Managers were also
appointed to electrical distribution in Australia and New Zealand.
The new leadership team is driving dramatic and rapid change in the automotive
and electrical distribution businesses in Australia and New Zealand in customer
service, revenue growth, cost reduction and margin improvement.
The replacement automotive parts businesses in Australia and New Zealand
suffered due to record sales of new vehicles, particularly Korean imports. This
trend, which is unlikely to abate, gives us confidence that our new do-it-
yourself format stores, which supply motoring accessories and parts for retail
customers as well as hard parts for the trade, is an appropriate strategy.
Results from these new format stores were slower to flow through than expected,
but by the year's end there was evidence of good progress being made in sales
and profitability.
At the end of the fiscal year, 45 new format stores were operating, with a
further 25 planned to be opened this year.
The Electrical Group had a difficult year. particularly in mining and major
projects in Australia and New Zealand. The Australian electrical contractor
market, however, is expected to be more buoyant in the current year.
Pacific Dunlop Cables Group
1998 1997 Change
$M $M %
Operating Revenue 406 412 (1)
Operating Profit 38 68 (44)
Profit Margin 9.4 16.5 (43)
Assets Employed 334 390 (14)
The Cables Group maintained revenue for the year in the face of a decline in
mining activity, particularly in W.A., and the temporary closure of the
state-of-the-art factory in Indonesia as a result of that country's economic
crisis.
The Group recorded a significant increase in sales of energy and construction
cable. However, increased costs related to the commissioning of new plants, the
closure of Indonesia and Geebung in Queensland, the sale of the communications
cables business and higher raw material costs, resulted in severe margin
pressure and a reduction in earnings.
Importantly, the Cables Group is well placed in its remaining construction and
energy businesses. Manufacturing operations have been rationalised into
fewer, larger operations, with the Geebung, Queensland, plant closed in the
second half of the year. Further, over the past 18 months, nearly $30 million
has been invested in factories at Lilydale in Victoria and Wetherill Park in
NSW, providing a significant and sustainable competitive advantage - we
believe the Group is now the lowest cost producer across its product range in
Australia and New Zealand.
Improved manufacturing facilities, together with an expected sales volume
increase in the current year as a result of electricity supply contracts won in
preceding years and vigorous cost reduction programs, should underpin
improvement in the years ahead under the stewardship of new Managing Director,
Mr Andrew Stobart.
The Cables Group now has seven of the 12 major electrical supply contracts in
Australia, and is the major supplier of electrical cable to Mercury Energy of
New Zealand as it rebuilds the power distribution system in Auckland.
It is also the preferred cable supplier to the main venues at Homebush Bay
for the Sydney 2000 Olympic Games. This contract, to supply
environmentally-friendly Envirolex cable to the multi-use arena, has been a
showcase for the Group's technological innovation.
The quality and productivity of the Group's factories is underscored by export
contracts for extra high voltage cable from our Australian factories to China,
Japan and Vietnam. While presently only a small part of the Group's sales,
exports are expected to grow strongly in the next few years.
Engineered Products had a difficult year due to the slowdown in mining activity
and exports to Asia.
GNB Technologies
1998 1997 Change
$M $M %
Operating Revenue 1235 1144 8
Operating Profit 55 34 62
Profit Margin 4.5 3.0 50
Assets Employed 903 936 (4)
GNB Technologies had an improved year, with increases in sales and profitability
despite the continuing fierce competition in the North American automotive
battery industry.
Significant improvement was experienced in the Industrial Division, particularly
in the U.S. and Europe, with continuing strong sales of its Marathon/Sprinter
batteries.
Good progress was also made in developing markets in Latin and South America,
which helped offset a fall in demand in Asia, particularly Japan and Korea, as a
result of the Asian economic slowdown.
Since the end of the year, agreements have been entered into for the sale of
GNB Technologies to Texas-based Quexco, Incorporated for US$550 million, subject
to regulatory approvals in the U.S. Australia and New Zealand. Settlement is
scheduled during the current half.
MORE TO FOLLOW
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