RNS No 4218w
PACIFIC DUNLOP LIMITED
14th November 1997
PACIFIC DUNLOP AGM
CHAIRMAN'S AND MANAGING DIRECTORS ADDRESSES
The following are the Addresses given by the Chairman of Pacific Dunlop, Mr John
Ralph and by the Managing Director, Mr Rod Chadwick at the Company's Annual
General Meeting at the Grand Hyatt Hotel, Melbourne, today.
THE CHAIRMAN OF PACIFIC DUNLOP, MR JOHN RALPH
At this stage 1 would like to mention that this is the first meeting for many
years without our former Chairman, John Gough here on the dais. But I am pleased
he is here with us at this meeting. His decision to retire from the board in
August marked the end of a remarkably distinguished career with this Company,
which I have referred to in the Annual Report. We all owe him a great deal for
his leadership in making Pacific Dunlop a major international company. I am sure
you would like to join me in wishing him all the best in the future.
I would also like to pay tribute to Jim Kennedy who retired in August, after 17
years on the Board. Jim's contribution to Pacific Dunlop has been significant
and we thank him very much.
It is now my privilege to address you as your new Chairman.
I am pleased to inform you that good progress was made during the last financial
year in re-establishing the foundations of the Group to enable us to go forward
confidently into the future. As Mr Gough told you at last year's Annual General
Meeting, the changes required to revitalise the Company, in the very competitive
environment in which we have to operate, would take some time. Change of the
magnitude being undertaken, inevitably does take time but it is pleasing to be
able to report to you that a good start has been made and good progress achieved
in the last year,
Despite sales revenue from continuing businesses being down by 3.6% in a very
competitive market place, financial results were up on the previous year. This
was due to a sharper focus being introduced into each of the businesses, with a
vigorous effort to improve efficiency and reduce costs.
As a result we saw:
* Net profit before abnormals improve by 9% to $176 million.
* Earnings per share before abnormals improve by 10% to 17.2 cents.
* Interest bearing debt reduce by 10% and interest cover increase.
* Gearing, as a consequence, being reduced by 12 percentage points to 56%,
almost half that of two years ago.
At the same time the shape and performance of the Company were both improved.
The number of business groups was reduced from nine to six, several non-core
assets were sold, working capital was reduced, cash flows were improved, and
better operating margins achieved in the second half.
Extensive rationalisation and restructuring was carried out in every business
and there is more to be done. This was an essential priority in the process of
returning the Company to robust health after the write-downs and provisioning
associated with the Accufix pacing leads at Telectronics. As you know, the
business of Telectronics was sold 12 months ago, although there are litigation
matters still outstanding in relation to the Accufix pacing leads. Telectronics
continues to manage the litigation.
As we announced in October, a settlement was reached by the insurers of all
outstanding Accufix litigation in Canada. This was done without admission of
liability, and without creating any precedent in the United States or elsewhere
in the world where there is still ongoing litigation.
The Canadian settlement reflected the particular situation in that country where
people who have suffered no injury and their families can still sustain a claim
for damages. Telectronics' strategic aim is to manage the litigation according
to the prevailing laws in each jurisdiction in the most cost efficient manner.
Meanwhile, the Accufix Research Institute which Telectronics established,
continues its on-going program of patient monitoring and care directed towards
the welfare of patients who have leads implanted. It continues to consult with
the Physicians Advisory Committee to assess patient information and assist with
recommendations in relation to patient treatment.
Looking at the six businesses which comprise the Group, five of them performed
reasonably well in the year under review with the sixth, GNB Technologies, being
disappointing. Let me summarise their performance, beginning with GNB.
GNB had a poor year with its EBIT, or earnings before interest and tax, nearly
halved to $35 million. There was a number of reasons for this - a fixed asset
writedown in the first half, an automotive industry market which declined by
some 3%, and unsatisfactory manufacturing performance, including the Columbus
lead smelter in Georgia, in the United States, which is still operating well
under its rated capacity.
More positive results, however, emerged the second half, which was the best
second half in three years, and the outlook for this year is for further
improvement. The degree of improvement will have a real bearing on Pacific
Dunlop's results for 1997/98.
Ansell International continued its steady growth with EBIT up by 9% to $111
million, notwithstanding an adverse currency impact of 9%. This was achieved
with further manufacturing improvements, successful new product development, and
increased margins. The result also includes three months of the Ansell Golden
Needles acquisition which gives Ansell a 40% share of the American cut resistant
glove market. We view Ansell as a prime profit growth area for the future and
will aim to expand it further globally.
The Cables group had an excellent year, increasing EBIT by 38% to $73 million,
although this year will not be as good principally because of the slowdown in
the demand for telecommunications cable. Last year's improvement was helped by a
significant involvement in the pay TV cable rollout in Australia, the first full
year of the new Indonesian manufacturing operation, and the winning of major
electrical supply authority contracts.
Pacific Brands underwent considerable rationalisation which led to markedly
improved results, with EBIT up by 18% to $105 million. Margins were healthier,
even though conditions in retail markets were generally flat. The group's focus
continues to be on brand marketing, effective sourcing and further cost
reductions.
South Pacific Tyres had to deal with a weaker automotive market, as well as a
strong flow of imports. As a result, EBIT dropped by 8% to $92 million. Market
share was generally maintained and export sales increased by 5% to nearly $80
million.
Finally, Pacific Distribution had an unchanged result with EBIT of $79 million.
The Australian and New Zealand market conditions for automotive and electrical
products remained difficult. Better results, however, are being achieved by the
new super store layouts and their special appeal to the Do It Yourself customer.
In addition, a number of ALH stores are being converted to a new open layout.
THE FUTURE
The main focus of the board and management is on achieving sustained and
profitable growth in the years ahead.
Each of our businesses is being critically examined as part of a wide-ranging
review across the whole Company. The outcome of the review will lead to an
assessment of the most appropriate strategies to determine their future
direction and our investment priorities. Ultimately, the conclusion will provide
a blueprint for growing Pacific Dunlop profitably into the next century.
Some of our businesses have excellent prospects for profitable growth. We will
aggressively pursue investment opportunities in those which can build on
existing strengths and provide the desired level of returns. Our approach in
this regard has been demonstrated this past year with Ansell's acquisition of
Ansell Golden Needles, which is already yielding dividends through strong profit
contribution, market share and synergies.
Profits in the first quarter of the current year were marginally above those of
the same period last year. The Australian economy continues to suffer from a
persistently subdued level of demand, and further uncertainty has emerged in
recent weeks with developments in Asia and the volatility in stockmarkets around
the world. While the Asian currency meltdown will result in significant
reductions in the cost of production from our Asian operations, it is difficult
at this stage to gauge its direct and indirect impact on the Australian - and
world - economies. Despite this uncertainty, however, we expect results in the
first half to finish above those in the same period last year.
Meanwhile, work is continuing across the Company to lift performance and returns
to shareholders. Over the past year, we have concentrated on getting the
fundamentals right; significant cost reductions; much better use of working
capital; and improved product development and marketing.
May I say the progress over the past year has been due to an excellent workforce
and management team. On behalf of the board, I extend our thanks to them for
their efforts in making the past year much better and in what they are doing to
ensure a brighter future.
THE MANAGING DIRECTOR OF PACIFIC DUNLOP, MR ROD CHADWICK
Today its my pleasure to review the businesses of Pacific Dunlop. I will also
describe the process we have embarked upon to improve the ranking of Pacific
Dunlop against other leading Australian companies. The comparison we are using
is the generation of total shareholder returns.
We are very conscious of the need to improve our performance, but I want to
emphasise to you what a sound company Pacific Dunlop is and how much potential
exists within its businesses. Let's begin by looking at a short video of some of
our recent advertisements, and some others which have not yet gone to air.
I hope that sample of our recent advertising campaigns leaves you with a feeling
for the impressive brands, products and businesses of Pacific Dunlop.
Because of time constraints we have shown you only a few, but I will mention
some of the other brands and products which we are proud to have:
In batteries - wonderful names like Champion, Marshall, Stowaway, Absolyte and
Exide.
In tyres - there is Dunlop, Goodyear, Olympic and many others. We also have
Beaurepaires and Goodyear Auto Service Centres.
In cables - the leading brands of Olex, National and Click.
In automotive and electrical distribution - Australia's leading auto parts chain
Repco, plus Lawrence & Hanson - the country's leading electrical trade supplier.
In our Brands Group - we have many wonderful brands too numerous to list
entirely. These include household names in clothing like Bonds, Berlei,
Holeproof, Red Robin and Jockey. And in sporting goods, Dunlop, Slazenger and
Malvern Star. And bedding - Sleepmaker, Simmons, Dunlopillo and Dreamland.
In healthcare and protective products we lead the world with products such as
Ansell and NuTex surgical gloves. And for industrial applications - Edmont,
Golden Needles and Nitrilite.
Our personal product brands include - Lifestyles, Checkmate and Mates.
Pacific Dunlop also has world leading technologies. Products such as our thin
nitrile and coated No Powder gloves, the Absolyte sealed lead acid battery for
industrial applications, and extra high voltage cable from Olex are examples.
I am also extremely proud of our people. Worldwide, Pacific Dunlop employs
38,000 people. Our operations span nearly 80 countries and we are learning how
to capitalise on the wealth of experience and knowledge that resides within this
worldwide group.
Today Pacific Dunlop has 54% of its people outside Australia. We generate 40% of
our sales and have 50% of our assets overseas. Profits from these businesses
approximate 39% of the total company's profit and this is growing.
The achievement of effective communication between divisions to unlock the
reservoir of ideas that exists within Pacific Dunlop is receiving our highest
priority. It is a critical component of the process, that will ensure the value
of Pacific Dunlop is greater than the sum of its parts.
At this stage it might be useful if I gave you a snapshot of the Company. I
describe the Businesses of Pacific Dunlop today as failing into three
categories.
* Manufacturing
GNB Technologies, Ansell International, South Pacific Tyres and Pacific Dunlop
Cables are businesses characterised by the significant level of capital
investment and technology required to compete successfully in their respective
industries. Two out of every three of our people are directly employed in the
150 manufacturing facilities we have worldwide.
* Distribution
Repco and ALH as well as our retail tyre outlets of Beaurepaires and Goodyear
Auto Service Centres, are businesses in Australia and New Zealand driven by the
need to be close to their customer base. Their strengths are outstanding
customer service, outstanding systems and outstanding logistics.
Branded Consumer Products
Pacific Brands is a manufacturer of branded consumer products. The
success of this group is based on its brands and its marketing.
Manufacturing tends to be labour intensive and we overcome this by
balancing our manufacturing in Australia with factories in China, Vietnam and
Indonesia.
On the matter of scale, four of Pacific Dunlop's businesses have sales greater
than $1 billion. We expect Ansell to be the fifth business to achieve this
volume by the end of 1998. Two of the businesses of Pacific Dunlop are global;
two are based in the Asia-Pacific Region; and two operate domestically in
Australia and New Zealand. The immediate task we have is to generate returns
from each business that will lift the ranking of Pacific Dunlop against other
leading Australian companies. Before I talk about this, I would like to review
the Company's performance for last year.
During the past year, there has been considerable change in Pacific Dunlop.
In addition to disposing of $300M. of non-core businesses, we have re-organised
management to become more effective:
* There has been a number of new senior appointments, including new Chief
Financial Officers in each division and a significant number of new managers
in the operating units.
* Not only is there a number of new people in the organisation but there is
also a new process for moving people around and across the company.
We have re-focused our people through:
* The revitalisation of the Company's culture to establish a greater sense
of urgency, a greater sense of unity and greater sharing of knowledge and
experience.
* The elevation of our cash value based shareholder return measures and the
introduction of executive rewards linked to shareholder value creation.
In terms of financial performance, last fiscal year saw a welcome return to
overall profitability which the Chairman has mentioned, and some stronger
operational performances.
When we began the year, we embarked on a three-stage process of Refocusing,
Reconstructing and Reconfiguring our company. This is a continuous process and
will therefore be ongoing. We started with Refocus - getting each business to
perform better. In the Reconstruct phase we sold non-core businesses. There
still remains a couple of smaller ones to quit.
To date our concentration has been on the first two phases. (Refocus and
Reconstruct) We are now working on the third - Reconfiguring the company. This
Reconfiguration will define the future direction of Pacific Dunlop. The
strategic review process which the Chairman mentioned is part of this.
In the Refocus phase, we achieved:
* Cost Reductions - through our strategic sourcing process and a commitment to
reducing the Company's running costs. This has already resulted in a
reduction in operating costs of more than $25 million in F'97.
* Efficiency Improvements - resulting from the early stages of our global
Manufacturing Excellence process. This saw factory rationalisation and
restructuring in the Cables and Pacific Brands businesses, and some
manufacturing improvements in our battery, tyre and Ansell factories.
* Better Investment Utilisation - particularly in working capital, which we
reduced by almost $100 million last year.
We are continuing our focus on each of these three areas in the current year.
This will lead to further consolidation of manufacturing operations and greater
efficiencies across the company.
I would now like to comment briefly on the divisional performances for the past
year. These performances can be characterised as follows:
* Three strong improvements
- Cables, Pacific Brands, and Ansell
* Two credible results
_ Distribution and South Pacific Tyres
* One disappointment
_ GNB Technologies
The substantial improvement in Cables came from:
* cost reductions, mainly in factories;
* some market share gain in medium and high voltage cable; and
* a full year of trading from Indonesia, and the Pay TV cable business in
Australia.
The Energy Division had a particularly successful year, winning a number of
new contracts for cable supply to electricity generating authorities, the Sydney
2000 Olympics site and to Power Link in Cairns.
The accelerated completion of the pay TV cable roll out in Australia has since
led to a decision to close our specialist CATV plant, Vision Cables.
As mentioned by the Chairman, the Cables group will not produce the same level
of profit this year as it did in 1996/97.
The improvement in Pacific Brands was particularly noteworthy given the flat
retail conditions.
The major areas of this improvement were:
* better brand management.,
* increased market shares;
* margin increases; and
* reduced costs.
Examples of better brand management were: Holeproofs successful launch of the
"Me" brand to department and specialty stores; Berlei's launch of its new range
of sports bras; and the re-launch of the Amco jeans brand.
Ansell International had a pleasing result despite a 9% adverse currency impact.
Its performance can be attributed to:
* the introduction of new products such as coated Powder-free and thin nitrile
gloves;
* manufacturing improvements;
* three months trading of Ansell Golden Needles, which was acquired in April'97
for $114 million and, lifted Ansell's share of the USA cut resistant glove
market to 40%. Annual sales are about $120 million and results to date are
meeting our expectations.
The recent relocation of Ansell's head office from Melbourne to New Jersey in
the USA is a reflection of the international status of Ansell. North America
now represents more than 50% of their worldwide sales. In Australia,
Ansell enjoys about 70% market share across its product range, which represents
just 7% of its total worldwide sales.
Pacific Distribution's result was in line with last year after incurring
restructuring costs in New Zealand, and encountering flat demand in the housing
and automotive markets.
As you have heard, Repco's new super stores which are designed to be more
accessible to the DIY customer are proving successful.
South Pacific Tyres came off a record year to perform reasonably in 1997 in a
weak market. Although the major product segments of passenger and truck tyres
were down 2.3% and 7.3% respectively, South Pacific Tyres maintained market
share.
In meeting this reduced domestic demand, SPT was successful in winning major
export contracts to the USA and UK. This export business is important
in maintaining the productivity and efficiency levels of our tyre factories.
The disappointment was GNB Technologies.
The major reasons for this were:
* asset write-offs in the first half;
* the continuing under-performance of the Columbus smelter; and
* adverse manufacturing performance caused by the reduction in sales volumes.
On the positive side, sales by GNB's Industrial Battery Group increased 12.5%,
helped by strong growth in the global telecommunications industry.
One problem which GNB is working hard to overcome is the performance of its
Columbus lead smelter. This was built to an advanced environmental design, but
has required extensive modification to operate effectively. During
this time production has been less than 50% of its designed capacity. This has
been a major drain on both profit and cash.
Lifting output to 55,000 tonnes in 1998 will reduce this drain. However,
production levels above this are required to break even.
In looking ahead, Pacific Dunlop has strong potential for growth in a number of
businesses and markets. I do not propose going through these in detail today,
except to mention two examples in the international arena.
The business with perhaps the greatest growth opportunity at present is Ansell.
Ansell is a wonderful Australian success story. This is a business that started
in Melbourne and is now our greatest international success, with global
leadership in a number of its products. In recent years it has made major
efficiency and cost improvements and has expanded into the high technology, high
growth protective glove market.
We see continuing growth for Ansell through new product development and
geographic expansion.
Products such as coated Powder Free medical gloves and thin Nitrile gloves are
expanding the natural and synthetic latex glove market whilst earning superior
margins.
Larger markets with better margins represent valuable growth opportunities.
Ansell is well placed to take advantage of these opportunities with its superior
product development processes and manufacturing technology.
The industrial battery business of GNB based in the United States is another
growth opportunity. Over the past four to five years, the Industrial Battery
business has doubled its sales to around $300 million, and margins are healthy.
Our leading technology will continue to drive sales growth in the United States.
At the same time we are growing in Europe and also supplying major customers in
Japan, Korea and China.
Finally, ladies and gentleman, we are planning for the future carefully. Our
approach will be to strengthen those businesses which we identify as having the
greatest scope for growth and top quartile performance. The businesses which
are unable to meet our performance standards will be evaluated for their
turnaround ability and restructured accordingly. We plan to pro-actively
manage our portfolio of businesses to maximise shareholder value.
We remain confident of the future for Pacific Dunlop and commit ourselves to the
continuing task of restoring value to the Company and to you - the shareholders.
END
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