Pacific Brands to sell workware unit to Wesfarmers after impairments led to full-year loss

Pacific Brands 12-month price history (NZX.com)

Pacific Brands [NZX: PBG] agreed to sell its workwear unit, which owns the Hard Yakka and King Gee clothing brands, to Wesfarmers after impairments against the business resulted in a full-year loss.

The Melbourne-based clothing and linen company said gross proceeds of the sale would be A$180 million, although profit on the sale would be about A$35 million before its share of corporate and service costs. Net proceeds would be used to repay debt, it said.

Pacific Brands announced non-cash impairments of goodwill and brand names at the workwear business of A$241.7 million when it reported its first-half results in February. That was the main contributor to a A$244 million loss in the year ended June 30, from a profit of A$73.8 million a year earlier. Sales in the year rose 3.8 percent to A$1.32 billion.

Workwear sales rose 1.6 percent to A$368.5 million of sales in the latest year, making up 29 percent of total revenue, while earnings before interest and tax fell 41 percent to A$22 million, excluding significant items. The company's underwear division, whose brands include Bonds, Berlei and Jockey, posted a 7.7 percent gain in sales to A$488.9 million, or 38 percent of the total, as Ebit climbed 7.9 percent to A$63.6 million before one-time items.

Sales at the linen unit, Sheridan Tontine, rose 12 percent to A$219 million, accounting for 17 percent of total revenue, while Ebit before one-time items fell 22 percent to A$13.9 million. Its brand collective unit, which includes footwear, apparel and sporting goods brands such as Clarks, Hush Puppies, Julius Marlow, Volley, Mossimo and Superdry, reported a loss of A$900,000 as sales fell 7.9 percent to A$204 million. The company chose not to renew licences for the Stussy and Naturalizer brands and relinquished its Diesel licence.

"The sale of workwear simplifies and focuses Pacific Brands group strategy around maximising the potential of our market leading brands such as Bonds and Sheridan," said David Bortolussi, who was today named chief executive, having served as chief financial officer since 2009. "It also reduces exposure to the challenging industrial market, and restores balance sheet strength to the company."

Pacific Brands is considering options to lift shareholder value including further investment in retail, international distribution and further streamlining the business, he said. The company hired Macquarie Capital in April to assist with a strategic review.

Excluding impairments, Pacific Brands' profit fell 28 percent to A$53 million in the latest year. Australia makes up 88 percent of sales and New Zealand is the second-largest contributor at 7.3 percent.

The workwear division owns a manufacturing site in Auckland. The sale requires approval from the Australian Competition and Consumer Commission.

Shares of ASX-listed Pacific Brands rose 1.3 percent to 57.75 Australian cents, and have declined 11 percent this year. Wesfarmers rose 0.2 percent to A$44.77.

(BusinessDesk)

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