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Paul - if
still interested in Goodman Fielder here is a piece from this weeks
'Business Review Weekly'
Cheers
Peter
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Does
Goodman Fielder have a future? |
| 14 June,
2001 |
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Long-suffering is an inadequate way to describe the
shareholders of Goodman Fielder.
Over the past decade or so,
they have watched Australia's largest food manufacturer stagger from
one crisis to the next, all the time pushing its share price to new
lows. Time after time, just when the bad news appears to be over,
another profit downgrade, management change or cost blowout is
unveiled, and Goodman shares take another tumble.
Over the
past week, Goodman's share price hit a 15-year low, as the company
downgraded its 2000-01 profit and announced more than $170 million
in abnormal losses and provisions for the year. At the same time,
Goodman defended its decision earlier this year to reject a takeover
offer from Pacific Equity Partners (PEP). PEP offered $1.60-1.70 a
share. Goodman directors did not take the offer to shareholders, and
have not explained why. Goodman shares are currently around $1.10.
On June 7, Goodman directors hired an executive-search firm
to find a replacement for chief executive David Hearn, who joined
the company in September 1995 and has failed to find a way to lift
its revenue, profit and share-price performance.
What is
wrong with Goodman? How long have you got? The company's key
problems – which existed when Hearn joined and have not gone
away – include:
- Too many of the product categories in which it
competes are commodities, such as edible oils, and milling and
baking. In the margarine market, for example, Goodman continues
to engage in price wars that destroy profit margins, undermine
the power of its brands, and reinforce to consumers the message
that price is the only product differentiator in the category.
- Constant restructuring and writedowns have made
it impossible to predict Goodman's earnings with any certainty.
The current abnormal losses and provisions are largely the
result of bringing forward restructuring costs that would have
been incurred over the next three years.
- Goodman continues to break its promises. In
announcing the $170 million in abnormal losses and provisions,
Hearn said Goodman would achieve double-digit earnings growth in
2001-02. Goodman shareholders have heard such optimistic
predictions in the past, and no longer believe them.
- A consistent failure to develop higher-margin
products. Goodman has scored some hits in recent years with new
products that deliver fatter margins, but most of its products
are low-margin goods, competing in categories where retailers
– not manufacturers – have the pricing power.
Goodman is currently valued at
around $1.4 billion, or 30% below its estimated break-up value. The
company is worth more dead than alive. Its directors should
seriously consider euthanasia.
Does Goodman Fielder have a
future? Not in its current form. For shareholders, the only
acceptable future for Goodman's various divisions is as subsidiaries
of other companies. |
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