PPL Full Year 2009 Result

Pumpkin Patch Limited Ordinary Shares | 11:09 am, 23 Sep

PPL
2.200
0.020
(+0.92%)
Market Announcement
Type:FLLYR

PPL Full Year 2009 Result

Pumpkin Patch Limited
Audited results for the 12 months ended 31 July 2009

Notes:
- all references to dollars are NZ Dollars unless otherwise stated

Major Achievements In 2009
- Net bank debt down 77% to $18m. Debt facilities in place until December 2011.
- Inventory down $42m to $80m. Holdings now in line with current market requirements.
- Implementation of a reorganisation plan for the United States retail stores.
- Net profit before tax excluding all United States stores and non-recurring items up 7.8% to $25.1m.
- Overheads realigned to match the current environment.
- The Company is well positioned for when trading conditions improve and to take advantage of market opportunities as they arise.

Pumpkin Patch Limited has today announced its audited result for the 12 months ended 31 July 2009.

Overview
During 2009 the Company embarked on number of strategic initiatives to strengthen its Balance Sheet and increase market share in a difficult retail environment.

As a result of those initiatives the Company has successfully reduced net bank debt by 77% to $18.4m, reduced inventory holdings by 34% or $41.6m, developed and implemented a reorganisation plan for its United States retail operation, and realigned overheads across all business units.

Total group revenue grew 4.5% to $428.6m despite the extremely difficult retail conditions experienced in all the Company’s global markets.

The extreme retail volatility experienced in the United States continued to materially impact Group earnings across 2009. Net profit after tax excluding all United States stores and non-recurring items was $25.1m up 7.8%. The implementation of the United States store reorganisation plan has lead to impairments and other non-recurring costs of $39.9m being recognised this year.

Net profit after tax excluding the 15 closed United States stores and non-recurring items was $18.5m down 4.2%. With these 15 United States stores included but excluding non-recurring items NPAT was $14.7m down 13.9%.

Australia Retail
Despite the soft retail environment encountered for much of the year the Australian stores continued to trade reasonably well with turnover up 2.5% on 2008.

Segment EBIT of $38.5m (FY08: $41.0m) reflected increased promotional activity across the year and the continued drive to build market share and consolidate the brand’s positioning.

During the period 5 new stores opened (FY08: 5) taking total stores to 111.

New Zealand Retail
The New Zealand retail environment was challenging during the year however the strength of the brand and increased promotional activity lessened the impact of those conditions with sales only marginally down 1.9%.

A change in sales mix resulting from the opening of 4 Outlet stores since the beginning of 2008 and increased promotional activity during 2009 impacted segment margins. As a result EBIT for the year was down to $11.1m (FY08: $12.6m).

Two new stores were opened during the year (FY08: 3), taking store numbers to 51.

Wholesale and Direct
Wholesale and Direct turnover was $62.5m, up 5.3% on 2008. Softer conditions being faced by wholesale partners in their home markets lead to lower wholesale orders especially in the latter part of the year. This however was offset by lower average export exchange rates and a strong performance from the mail order and internet business.

EBIT for the year was $16.6m up 6.7% on last year.

United Kingdom Retail
United Kingdom retail sales conditions continued to be very volatile throughout the year.

While sales were similar to last year high promotional activity was necessary leading to a generally lower margin. The EBIT loss for the year was $5.0m (2008: $2.6m) before non-recurring impairment charges.

As a result of the annual review of stores required under IAS36 (Impairment of Assets) the Company has made a non-cash impairment charge in 2009 of $6.4m to adjust downwards the carrying value of 10 United Kingdom stores. The Company is implementing strategies that focus on improving the operating results of the lower performing stores.

During the year 1 new store was opened (2008: 5) taking the total number of stores to 36.

United States Retail
In response to the extremely difficult economic environment in the United States and the high levels of uncertainty as to how long those conditions would continue the Company implemented a reorganisation plan for the United States retail stores. Under that plan 15 of the Company’s 35 stores were closed. Leases on the remaining 20 stores are being renegotiated at levels that better reflect current market conditions.

The total costs of the reorganisation are approximately $39.9m including the full impairment of all fixed assets in the United States, inventory revaluation costs, employee obligations, and legal and other professional fees. Approximately $4.8m of those costs are cash in nature.

Due to the corporate structures employed in the United States the reorganisation plan does not impact any other trading segment including the United States wholesale company. The plan utilises legal protections afforded to United States corporate bodies that reorganise their business operations and therefore does not impact the New Zealand parent company.

Excluding the non-recurring reorganisation costs the segment generated an operating EBIT loss of $14.8m for the year (2008: $9.2m). Adverse trading conditions and the relatively young age of the majority of the stores made it impossible for stores to make any headway in 2009.

Unallocated Overheads
Unallocated overheads were $19.7m down 10.3% (2008: $22.0m). This reflected reductions in overheads across Head Office functions and lower unrealised mark to market losses on foreign exchange contracts. The result includes approximately $1.0m of one off restructuring costs.

Cash Flows and Balance Sheet
The Company has significantly strengthened its Balance Sheet to be well positioned to deal with any ongoing trading uncertainty and to take advantage of any market opportunities that arise.

Net bank debt has reduced significantly by $62.9m or 77% to $18.4m.

Continued focus on the management of inventory levels across all markets has resulted in a $41.6m or 34% reduction in inventory holdings. Inventory at July 2009 was $80.2m.

Capital expenditure cash flows totalled $11.8m (2008: $35.9m).

Dividend
The Directors have approved the payment of a final dividend for 2009 of 4.50 cents per share (2008: 3.50cps) taking the total dividend for the 2009 year to 7.50 cents per share (2008: 7.50cps). The dividend will be paid on 22nd October 2009, have a record date of 8th October 2009, and will be fully imputed for New Zealand shareholders and fully franked for Australian shareholders. Non-resident shareholders will receive a supplementary dividend.

Foreign Currency
As reported in November 2008 Pumpkin Patch realigned its foreign exchange cover portfolio to recognise both the changing retail market conditions and the volatility in foreign exchange markets. Movements in the NZD around that time lead to significant mark to market gains on foreign exchange cover.

Approximately $36m of mark to market gains were realised resulting in an immediate reduction in bank debt.

As outlined previously the realignment of cover would not materially impact earnings before interest and tax in 2009 and later years. Under International Financial Reporting Standards (IFRS) the mark to market gains that have been realised are required to be held in reserves and taken to earnings in the period in which the original foreign currency contract was due to mature.

Outlook for 2010
Trading conditions are expected to remain difficult in the near term. Despite this uncertainty the initiatives undertaken in 2009 have positioned the Company well to take advantage of improved trading conditions when they eventuate.

Australia
Trading conditions are expected to remain subdued. The Company will continue to promote strongly to grow market share and strengthen the brand’s market position.

The Company is currently assessing a number of new store locations across Australia to consolidate its store network and to take advantage of opportunities that arise in softer retail environments.

New Zealand
The current retail environment is expected to continue in the near term. The Company will continue to focus on growing market share and reinforcing the strength of the Pumpkin Patch brand in the market.

Wholesale
Wholesale customers are expected to lower their orders in 2010 as they deal with challenging conditions in their home markets. However the Company continues to work closely with its partners to develop brand growth opportunities.

The Direct operations will continue to identify and develop growth opportunities across all of its markets.

United Kingdom
The poor economic environment is expected to continue and trading will remain volatile. Despite this the Company expects to have some improvement on the 2009 result in the coming year. Recent supply chain initiatives are improving the flow of product into the market.

The leasing market has softened significantly which will lead to lower rental costs however the full impact of this will not be seen for a number of years while leases go through scheduled reviews.

This environment is also creating possible new store opportunities which are currently being assessed.

United States
While the reorganised store network is expected to have a significant positive impact on total Group earnings and cash flows in 2010 trading in the United States remains very unpredictable with no immediate signs of recovery being seen. The Company continues to closely monitor all stores on a store by store basis and implement strategies to improve performance.

The changes made in the United States will provide shareholders with better financial outcomes in the near term and create a more sound foundation on which the Company can develop its United States strategy in the longer term

Bank debt
Based on current trading conditions and expected working capital and capital expenditure requirements bank debt is expected to remain around current levels.

The bulk of the bank debt facilities are in place until December 2011.

Inventory
Focus will continue to be directed at inventory management strategies to ensure inventory levels remain around current levels based on an average store holding basis.

Foreign Exchange
While the Company maintains good levels of foreign exchange cover the ongoing volatility of the New Zealand Dollar makes it increasingly difficult to predict how foreign exchange rates will influence the 2010 result and plan for longer term growth initiatives.

Summary
During the last eighteen months Pumpkin Patch faced unprecedented volatility in all of its markets. While Australasia now appears to be more stable other markets remain volatile. The Company continues to adjust its strategies to meet market demands and is confident that it will continue to make progress in 2010 despite some challenges in the near term.

The Company embarked on a major debt reduction program in 2009 which has significantly strengthened its balance sheet and positions it well for the future.

Pumpkin Patch remains the leading specialty childrenswear offer in Australasia and plans to further expand in these markets. Even though trading conditions will remain very challenging in the United Kingdom and earnings will be impacted the brand continues to get stronger. The changes made in the United States will deliver much improved financial outcomes for our shareholders in years to come.

We thank the entire team at Pumpkin Patch for a tremendous effort over the last year.

On behalf of the Board of Directors

Maurice Prendergast
Chief Executive Officer

Greg Muir
Chairman

Pumpkin Patch Limited
23rd September 2009

Audited financial result for the 12 months ended 31 July 2009
This report has been prepared in a manner which complies with New Zealand International Financial Reporting Standards (NZIFRS) and gives a true and fair view of the matters to which the report relates and is based on audited financial statements. It should be read in conjunction with Appendix 1 and Appendix 7 issued to the New Zealand Stock Exchange on 23rd September 2009.

CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE
(Under NZIFRS)

Current Full Year NZ$'000; Up/ Down %; Previous Corresponding Full Year NZ$'000

TOTAL OPERATING REVENUE FROM CONTINUING ACTIVITIES: $412,348; Up 3.2%; $399,466

PROFIT BEFORE TAX FROM CONTINUING ACTIVITIES AND BEFORE NON-RECURRING ITEMS AND INCOME TAX: $27,383; Down 12.5%; $31,294

NON-RECURRING ITEMS ATTRIBUTABLE TO CONTINUING ACTIVITIES: ($16,787); NIL

PROFIT FROM CONTINUING ACTIVITIES BEFORE INCOME TAX: $10,596; Down 66.1%; $31,294

LESS INCOME TAX ON PROFIT FROM CONTINUING ACTIVITIES: $8,834; Down 26.0%; $11,941

PROFIT AFTER TAX FROM CONTINUING ACTIVITIES ITEMS: $1,762; Down 90.9%; $19,353

LOSS FROM DISCOUNTINUED OPERATIONS AFTER TAX: ($28,501); ($2,274)

OPERATING (LOSS) SURPLUS AFTER TAX ATTRIBUTABLE TO MEMBERS OF LISTED ISSUER: ($26,739); $17,079


Final Dividend: 4.50 cps (2008: 3.50cps)
Record Date: 8th October 2009
Date Payable: 22nd October 2009

Tax credits on final dividend: Fully imputed for New Zealand residents; fully franked for Australian residents; Supplementary dividend payable to non-residents.

To assist with the interpretation of the financial result and the assessment of the impact of discontinued and non-recurring items the following section provides additional disclosures of the financial result for the Group including the disclosure of net profit after tax excluding non-recurring items:

Current Full Year NZ$'000; Up/ Down %; Previous Corresponding Full Year NZ$'000

TOTAL OPERATING REVENUE FROM CONTINUING AND DISCONTINUED ACTVITIES: $412,348; Up 3.2%; $399,466

OPERATING SURPLUS AFTER TAX EXCLUDING DISCOUNTINUED ACTIVITIES AND NON-RECURRING ITEMS: $18,549; Down 4.2%; $19,353

OPERATING LOSSES AFTER TAX FROM DISCOUNTINUED ACTIVITIES: ($3,843); Up 68.9%; ($2,274)

OPERATING PROFIT AFTER TAX EXCLUDING NON-RECURRING ITEMS: $14,706; Down 13.9%; $17,079

NON-RECURRING ITEMS AFTER TAX: $41,445; NIL

OPERATING SURPLUS (LOSS) AFTER TAX ATTRIBUTABLE TO MEMBERS OF LISTED ISSUER: ($26,739); $17,079