Goodman looks beyond supermarkets

CRUNCHED between rising input costs and supermarket discounting, Goodman Fielder disappointed investors on Wednesday reporting a 9 per cent drop in sales, to $1.2 billion, and a 17 per cent drop in earnings to $95 million, for the first half of 2012-13.

Goodman blamed the fall on lower volumes and pricing in its troubled baking and grocery divisions, notwithstanding a 38 per cent jump in marketing spend. Goodman shares fell 4.8 per cent to 68.5¢, despite a 137 per cent increase in statutory net profit to $51 million, which was boosted by last year's sale of the Integro oils division to Graincorp.

But Goodman said there were signs of a turnaround in baking, and it had been able to raise prices for its own breads in negotiations with major retailers last year, in line with the 8 per cent rise in the price of branded fresh-bake bread since November, according to industry data.

Goodman is in the process of renegotiating its contract to make home-brand bread for Coles, which the chief executive, Chris Delaney, said had been a "mistake". He would not sign another deal under the same conditions, he said.

Mr Delaney said Goodman continued to achieve savings, particularly in distribution - which cost more than bread-making - and had removed 30 per cent of its bread portfolio, and was innovating, as with the success of the La Famiglia range of garlic breads made at its new bakery at Erskine Park, which had increased market share 10 per cent.

Mr Delaney said Goodman was trying to increase its sales beyond supermarkets, by working out "how to delight the consumer no matter where they consume".

In baking "the consumer habit is far larger than where we're competing today" - potentially a $4.5 billion market - he said.

Mr Delaney said within three years the baking division would deliver shareholder returns above its cost of capital, "and therefore be an asset for shareholders, instead of obviously a drain".

He did not rule out further plant closures or job losses but said there were no plans for further redundancies "at this time".

Its chief finance officer, Shane Gannon, said although Goodman had hedged its commodity costs it was "exposed" in the second half of this year and could need to raise prices if the wheat price remained high.

On a brighter note, Goodman said it had reduced net debt 35 per cent to $498 million during the half.