Goodman flags brand offensive as earnings claw back

BLAIR SPEEDY
August 15, 2013
The Australian

FOOD manufacturer Goodman Fielder has fought its way back to profitability and now has its sights set on earnings growth, flagging a marketing push to boost the appeal of its brands to shoppers.

In a sign that the supermarket price war may have entered a new phase, chief executive Chris Delaney said supermarket’s in-house brands were no longer the company’s biggest competitive threat, and Goodman was now having to fight its corner against producers of branded goods.

Goodman’s $102.5 million profit for the 12 months to the end of June was a sharp turnaround from the previous financial year’s $146.9m loss, when asset writedowns of $300m on its baking business drove the bottom line into the red.

The baking division’s $49.5m contribution to the earnings before interest and tax before one-off items was still down by 9 per cent; however, Mr Delaney said this masked a strong trend of improvement with second-half earnings being double those of the first half.
But the market remained very competitive, and an attempt to push through price increases in December had to be reversed when it led to a sharp fall in volumes that cut revenues by 3 per cent to $897.8m.

“We expected the fresh loaf market to move up with us . . . our competitors don’t want to take as much price as we do, that’s the reality of the competitive market, so some of that pricing we’re going to have to give back,” he said.

Mr Delaney said supermarket private-label bread, including the $1 loaves introduced by Coles in 2011, were no longer eroding market share of branded bread; however, the branded bakers were now slugging it out among themselves.

“We’ve seen a flattening of private label; it has 16 per cent of the fresh loaf business, and I think it was at 15 per cent before dollar bread was launched,” Mr Delaney said.

“So private label is no longer the big issue in bread, it’s the competition between the big proprietary brands, with activity in pricing discounts and promotions and marketing investment from Abbott’s, The One and now (Goodman brands) Helga’s and Wonder moving forward.”

Mr Delaney declined to comment directly on the company’s 18-month renewal of a private label bread supply contract with Coles, which is understood to include a 10 per cent increase on the price the company had received during the past two years of the contract.

“We feel that the conditions of that contract are favourable to our shareholders, and that supports us continuing to staying in that business,” he said yesterday, while declining to confirm details of the contract.

Sales from its grocery line, which includes Meadow Lea margarine and Praise Mayonnaise, fell 7 per cent to $502.8m, while EBIT from the division was down 12 per cent to $63.4m, a result that Mr Delaney said reflected subdued consumer sentiment as well as competition from other manufacturers and private label products.

The company has not made any forecasts regarding the new financial year, although Mr Delaney said earnings would be higher in the second half of the financial year than the first, and rising farmgate prices for milk would put pressure on earnings from the dairy division.

Goodman declared a dividend of 3c a share, a welcome return to shareholder payouts after last year’s loss prevented any dividend from being paid.

Shares in Goodman Fielder fell as much as 5.25c to a two-week low of 71.75c before closing at 73.5c, down 3.5c for the day.