Goodman Fielder Records $130.9 Million Profit

Australasia’s biggest food company, Goodman Fielder Limited, has recorded an after tax profit pre-abnormals result of $130.9 million for the 2000 financial year – a 24.2% increase over the previous year.

Goodman Fielder, Chief Executive, David Hearn, said the profit result confirms the success of the company’s strategy of restructuring the business over the last couple of years.

“The profit result highlights the benefits of our restructuring program including the acquisition of the Bunge Defiance milling and baking business in Australia and the Ernest Adams baking business in New Zealand, and the sale of the poultry business, Steggles,” he said.

“We have also taken decisions to reduce costs and improve earnings with the rationalisation of our Trans-Tasman milling business and the restructuring of our Edible Oils and Cereals & Snacks businesses. These decisions involve short term restructuring costs, and resulted in abnormals after tax of nearly $48 million, but they are producing a stronger, more resilient and competitive business, as evidenced by the strong earnings result.

“Four out of five divisions reported record earnings before interest and tax, even though sales were down by more than seven per cent following the sale of non-core businesses. Excluding the one-off tax benefit of $7.5 million from the full year headline profit of $130.9 million, the core operations still delivered a net profit pre-abnormals figure of $123.4 million, 17.1 per cent higher than last year. Net profit after abnormals of $83.0 million was also up by just under 27 per cent and net cash from operating activities was up by 53.2 per cent to $267 million.”

“This result demonstrates that the restructuring work conducted over recent years is paying off. We are now well placed to take advantage of the next phase of benefits that only become available as we integrate the businesses more fully.”

Dividend
Following a review of performance in the 2000 financial year, the Board of Directors have declared a final unfranked dividend of 4.0 cents per share, giving a total dividend for the full year of 7.5 cents per share.

The dividend is equivalent to a payout ratio of 73.1 per cent, which is within the band approved by the Board of Directors in September 1999 of between 60-75 per cent of net operating profit after tax.

Shareholders must advise the share registry, National Registry Services, by 22 September 2000 whether they wish to participate in the Dividend Reinvestment Plan or otherwise change how they elect to receive the dividend payment. The final dividend will be mailed to shareholders on 6 October 2000.

Outlook
The Chairman of Goodman Fielder, Mr Jon Peterson, said the company is now well placed for the next phase of development which will generate further cost savings and earnings growth on the back of the more focused business portfolio within the group.

“The 2000 financial year profit result and the focused strategy of building a more integrated food company provides improved confidence about future earnings growth,” Mr Peterson said.

“Our clear objective is to generate increased earnings and higher returns to shareholders on a sustainable basis. In this respect, we expect to frank our dividend payment to 50 per cent from the first half of the next financial year.”

For further information:

Jill Dryden, Porter Novelli New Zealand
Tel: 09 373 3786 or 021 242 0486

Financial Summary
A$M

30/6//00 30/6/99 % Change

Net external sales 3,136.3 3,394.3 -7.6

Total trading EBIT 252.6 216.6 16.6

Net Interest -59.1 -52.5

Tax -60.3 (1) -57.0

Minority Interests -2.3 -1.7

NOPAT 130.9 105.4 24.2

Abnormals after tax -47.9 -40.0

Net profit 83.0 65.4 (2) 26.9

(1) Includes $7.5million benefit from change in Australian tax rate
(2) Excludes extraordinary loss after tax of $44.8 million from the Steggles sale

Half Year Performance

Earnings Before Interest & Tax

2000 1999 % change

First Half 125.6 95.6 31.4

Second Half 127.0 121.0 5.0

Full Year 252.6 216.6 16.6

Net Operating Profit After Tax

2000 1999 % change

First Half 67.9 (1) 46.1 47.3
60.4 (2) 46.1 31.0

Second Half 63.0 59.3 6.2

Full Year 130.9 (1) 105.4 24.2
123.4 (2) 105.4 17.1

(1) Includes the $7.5 million one-off tax benefit
(2) Excludes the $7.5 million one-off tax benefit

Key Ratios & Indicators

2000 1999

Net Debt ($ million) $778.5 m $835.0 m

Gearing Ratio (% - Net Debt/Equity) 60.3% 65.3 %

Interest Cover (EBITDA) 6.9 times 7.1 times

Net Cash from Operating Activities $267.0 m $174.3 m

ROFE (%) 11.4 % 9.8 %

Earnings Per Share (Pre Abnormal) 10.3 cents 8.3 cents

Dividend Per Share (Cents) 7.5 cents 7.5 cents

Divisional Results
Earnings before interest and tax
A$M

30/6/00 30/6/99 % Change

Milling & Baking 117.8 90.1 30.7

Edible Oils 60.9 51.7 17.8

Cereals & Snacks 58.1 49.3 17.8

Ingredients 23.8 34.8 -31.6

International 22.5 16.7 34.7

Other (1) (30.6) (23.3) -31.3

Discontinued Businesses 0.1 (2.7) -

Trading EBIT 252.6 216.6 16.6

(1) Includes corporate and central service expenditure

Divisional Summary

Milling & Baking

Record sales and earnings by the Milling & Baking division followed the acquisition of Bunge Defiance in Australia and Ernest Adams in New Zealand, the Trans-Tasman milling rationalisation, the national launch of Helga’s bread in Australia and cost reduction initiatives.

Divisional sales were up by 13.8 per cent to $1,289.6 million and earnings before interest and tax were up 30.7 per cent to $117.8 million. Return on funds employed also increased to 14 per cent.

In Australia, sales were up 15.4 per cent to just over one billion dollars and earnings before interest and tax were up just over 50 per cent to $76.5 million, which represents 30 per cent of group earnings.

In New Zealand, sales were up 8.8 per cent to $288.3 million and earnings before interest and tax were up 5.4 per cent. The financial result in New Zealand dollars was stronger with sales and earnings before interest and tax up 15 per cent and 11 per cent respectively.

Taken together, our milling and baking division in Australia and New Zealand both now have clear market leading positions which combined represent approximately 47 per cent of total group earnings before interest and tax. This stronger position in the overall business makes the future earnings stream much more stable and predictable.

We intend to capture the benefits of further integration in Milling & Baking by progressing the flour milling rationalisation in Australia to make us the lowest cost producer on both sides of the Tasman and continue to reduce operating costs in our baking business in both Australia and New Zealand.

We also intend to leverage sales growth through organic and acquisition opportunities in both Australia and New Zealand. The diversification of our New Zealand baking business into value added products such as pies, pizzas, garlic bread, fresh sandwiches and prepared cakes with the Ernest Adams acquisition shows that there is scope to expand and to grow our business on both sides of the Tasman. The acquisition of the rice milling operations of Water Wheel Holdings in Victoria highlight the possibilities that are available to extend our business into adjacent categories which offer higher growth prospects in the future.
Edible Oils

The Edible Oils Division delivered another record performance in both Australia and New Zealand this year with a 17.8 per cent increase in earnings before interest and tax to $60.9 million. Return on funds employed increased to 24.7 per cent.

Retail sales growth of 8.5 per cent was offset by a 15 per cent reduction in commercial sales as lower commodity prices were reflected in cost-plus contracts with industrial customers. As a result, sales actually fell by 5.5 per cent to $584.5 million. However, the elimination of high cost oil stocks during the first quarter enabled Meadow Lea to be much more competitive in local markets against imports as the year progressed. Strategic sourcing of packaging, and the restructuring of administration, finance and quality functions also provided cost savings.

Meadow Lea continued to grow retail sales of healthier margarine spreads and bottled oils such as Logicol™. New value added products such as Top Nosh and meal solutions kits such as Asia@Home also helped to improve earnings for the business. Asia@Home was so successful it became market leader within six months of being launched.

During the year, Meadow Lea announced a major restructuring program designed to extend its lowest cost producer status and still further improve its returns on funds employed. The restructuring strategy will result in the consolidation of our Port Melbourne site with our West Footscray facility in Melbourne and the transfer of production from our Mascot site in Sydney to focused factories in other States. This will reduce changeover times and lower unit production costs and result in savings of approximately $15 million in the next three years.

Cereals & Snacks

Our Cereals & Snacks division produced another record performance on the back of several successful product launches in both Australia and New Zealand and a renewed focus on cost reduction. Stronger sales and improved operational performance contributed to a 17.8 per cent increase in earnings before interest and tax to $58.1 million. Return on funds employed also increased to 12.8 per cent.

Uncle Tobys increased sales by 11.2 per cent to $376.2 million and earnings before interest and tax increased by 26.8 per cent to $44.0 million. Bluebird also increased sales in New Zealand dollar terms by four per cent to NZ$165.5 million and earnings were up by two per cent to NZ$17.6 million.

Divisional sales were up 7.6 per cent to $508.7 million as the successful launch of Uncle Tobys Oven Baked Fruit bars was followed by Twists and White Wings Mini-Treats. In New Zealand, our cereal and potato snacks business, Bluebird Foods, launched new ranges of snacks to retain its market leadership position in eight major supermarket categories.

Uncle Tobys, White Wings and Bluebird also continued to reduce operating costs through the consolidation of manufacturing sites, including the announced closure of the Bluebird oat mill at Gore on the South island of New Zealand and the transfer of oat production to the Uncle Tobys manufacturing site at Wahgunyah in northern Victoria. White Wings also streamlined production at its manufacturing site at Smithfield in western Sydney following the sale of Vetta pasta in September 1999.
GF Ingredients

GF Ingredients felt the full impact of the worst global gelatin pricing in 10 years. As a result, sales fell by three per cent to $398.2 million and earnings before interest and tax fell by 31.6 per cent to $23.8 million. Return on funds employed consequently fell to 5.3 per cent.

Management locked in higher priced contracts as long as possible in the first half but the full effect of excess gelatin supply and lower gelatin prices was felt in the second half. Strong performances in Starch Australasia, Germantown and gelatin in Australia and New Zealand partially offset the impact of depressed trading conditions in the Northern Hemisphere. Intensive cost cutting (generating savings of approximately $10 million in the year) and sales diversification initiatives have positioned the business well to recover when trading conditions improve. Towards the end of the financial year, gelatin stocks were falling and pricing improving.

The recently announced sale of Starch Australasia signals our determination to realise the best returns for shareholders from our global Ingredients business. Goodman Fielder sold the business because we believed an international starch player could develop the business and Hi-maize™ more effectively. As a result, Goodman Fielder shareholders have received a good return on Starch Australasia and we will get the added benefit of royalty payments from future global sales of Hi-maize™ by Penford Corporation. Goodman Fielder will retain exclusive rights to use Hi-maize™ in bread products throughout Australasia. In addition, Goodman Fielder will use the proceeds of the sale to invest in higher returning investments in our core businesses.

GF International

GF International, our milling & baking, edible oil and snacks businesses in Asia and the Pacific Islands produced a record result in the midst of very difficult trading and volatile currency conditions. Efforts to diversify sales in other regional markets such as South Africa and the United Kingdom boosted returns. Total sales increased by 12.5 per cent to $319.6 million and earnings before interest and tax rebounded 34.7 per cent to $22.5 million. Return on funds employed increased to 17.4 per cent.

The acquisition of the former Unilever edible oils business in China, Shanghai Van Den Bergh, and good sales growth in the Pacific Islands, particularly Papua New Guinea, contributed to sales and earnings growth. The benefits of this growth helped to offset the adverse translation impacts of further Kina devaluation in Papua New Guinea, the earthquake in Taiwan which saw demand for frozen food impacted, and the coups in Fiji and the Solomon Islands which disrupted sales. The outlook for the International division remains mixed with signs that demand in the major economies of Asia is starting to grow again while political instability, economic downturn and import competition will effect operating conditions in the Pacific Islands.
Other Business Issues

The shift to a new group headquarters at Macquarie University in Sydney has reinforced the move to a one-company culture within Goodman Fielder and has already begun to increase productivity within the company. It was a cost neutral exercise as the costs of establishing the new headquarters were offset by a reduction in lease costs in former divisional premises.

However, other costs increased by 31.3 per cent to $30.6 million as a result of a number of different initiatives to produce a better business. As part of our continued drive towards a more integrated company, we have continued to invest heavily in a company-wide information technology system using SAP to enable us to capture the next phase of productivity benefits. The IT system has been rolled out to all divisions except Milling & Baking and Ingredients. In addition, Corporate costs also increased because of additional expenditure on managing the Y2K issue and the implementation of the Goods and Services Tax (GST).

The end of the superannuation holiday in Australia for part of this year also contributed to higher corporate costs. The end of the superannuation holiday in Australia will have a bigger unfavourable impact on corporate costs in the 2001 financial year.

For further information:
Jill Dryden, Porter Novelli New Zealand
Tel: 09 373 3786 or 021 242 0486

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