Pacific Brands returns to profit, reinstates dividend

Pacific Brands [NZX: PBG], owner of the Sheridan, Bonds, Berlei, Tontine and Dunlop Flooring brands, returned to profit in its first half and reinstated dividends with a payout ratio of 60%.

Net profit was $A24.3 million for the six months ended December 31, a turnaround from a $A108.7 million first half loss last year, the Melbourne-based, dual-listed company said in a statement.

Pacific Brands withheld paying a dividend last year despite becoming debt free for the first time, saying it wanted to get its balance sheet right for future investment, including international expansion for its best-performing brands. Net cash is now A$33 million and the company will pay a 1.6c  per share fully-franked dividend for Australian shareholders.

Sales were up 8.6%  across all brands to $A425.3 million, with the Sheridan clothing and Bonds undergarment brands now accounting for 71%  of total sales. A 14%  rise in Bonds sales followed a strong performance in New Zealand, driven by additional distribution and Jockey's All Blacks sponsorship.

Last year marked a turning point for the company after six years of restructuring, which included selling off a number of loss-making brands, shifting production to Asia, and putting more focus on retailing through its own stores rather than just wholesaling through supermarkets and department stores.

Chief executive David Bortolussi said its strategy of slimming down the company to focus on a higher-quality, simplified business with greater growth potential and a strong balance sheet was working.

"At our full-year results and AGM, I said that the 2015 financial year marked a turning point in sales and earnings trajectory of Pacific Brands and I am pleased that our 2016 first-half results have demonstrated it," he said.

"Our strategic priorities are clear; we are investing in growth and expect our operational plans to deliver earnings before interest and tax of $A73-75 million" in the current financial year.

Second-half sales for the six weeks to date are up 8%  compared to the previous corresponding period and the company said while May and June are significant trading months, it expected ebit to grow in line with the first half.

Currency depreciation remains a risk, with the weaker Australian dollar and 80% percent of the cost of goods sold settled in US dollars. The group increased prices at Bonds retail outlets in October and at the underwear wholesale level last month and has been introducing cost-saving measures to offset immediate currency headwinds. Further measures are being taken to address currency depreciation risk in the 2017 financial year.

The company's new Goods to Person picking system at its primary distribution centre, which serves the underwear and Sheridan businesses and will significantly increase capacity, is expected to be fully operational by the second quarter of 2017.

(BusinessDesk)