Goodman weighs seven plant closures to hit savings target
Consumer foods company Goodman Fielder could close another seven plants in the next two years as part of a plan to boost earnings per share by 6 per cent and lift return on capital employed to at least 13 per cent.
In a presentation to investors in New Zealand on Thursday, Goodman Fielder chief executive Chris Delaney reiterated plans to free up funds to invest in direct marketing and product development by cutting costs and selling non-core assets. Under Mr Delaney's Project Renaissance strategy, Goodman has achieved cost savings of $65 million over the past two years and is on track to reach $100 million in savings by 2015.
The company, which makes Helgas and Wonder White bread, Meadow Lea spreads, Praise salad dressings and White Wings flour, has closed more than eight plants and plans to close or sell another seven, reaching 35 by 2016, to improve capital efficiency.
Non-core assets, including the Integro fats and oils business, the New Zealand milling operations and dips maker Copperpot, have been sold. The company is also believed to be seeking buyers for its Pampas pastry, Paradise Biscuits and NZ meats businesses.
Mr Delaney believes Goodman should be able to deliver 6 per cent annual earnings per share growth and lift return on capital employed to between 13 and 15 per cent by 2016, compared with 11.6 per cent in 2012 and 10.3 per cent in 2013.
But his strategy depends on the support and co-operation of the major grocery chains, which are cutting prices and expanding their private label ranges.
Goodman has renegotiated private label bread contracts with Coles, cut the number of bread products by 30 per cent and restructured bread distribution routes. The company has also achieved small shelf-price rises in bread, but promotional pricing remains intense.
Mr Delaney warned at last week's annual meeting that profits this year would be "significantly" weighted towards the June half because of pricing pressure in bread, higher milk costs and increased investment in marketing and innovation.
In the NZ dairy business, farmgate prices have risen by more than 40 per cent since the June quarter 2013 and Goodman has been unable to fully recover higher input costs due to aggressive wholesale pricing by rivals.
The company is developing new sales channels and routes to market dairy products and bread.