any news on pbg, page-10

From the Australian today

"PACIFIC Brands is expected to announce a substantial cut in its dividends as early as today, in an attempt to save cash amid what could be called the perfect storm.

Just a matter of weeks ago its long-time chair Pat Handley walked for no apparent reason other than his desire to retire.

When a director retires from a public company, with little in the way of explanation, questions are asked. But when the chair does the situation is magnified.

But while that may signal some issues, the fundamental problem facing the company is the issue du jour: debt.

The company has an equity value of $291 million, debt totalling $740 million and $550 million of this is due to be refinanced in February 2010. In other words its market capitalisation is just 53 per cent of short-term debt and on present trading it is in real danger of breaching debt covenants in the near future.

In her defence, back in October chief executive Sue Morphet warn*ed that profits would not match earlier forecasts, but each day the dollar slips in value and the Australian economy slips closer to a recession, the debt covenants loom larger.

To satisfy the bankers, net debt must be less than 3.5 times earnings before interest tax and depreciation (EBITDA), less capex divided by net interest.

EBITDA last financial year was around $240 million, but will clearly fall below that level this year.

Given that last year's earnings were only just above the debt covenant levels, the margin for slippage is small.

Last year the company paid dividends of 17c a share on earnings of 23.7c and shareholders from 452 Capital down have politely suggested the company's payout ratio is unsustainable.

This explains why, as soon as today, the company will announce dividends will be slashed.

Of course Pac Brands is not Robinson Crusoe on this issue, with companies across the spectrum closely monitoring their position.

Orica's Graeme Liebelt is watching customer announcements carefully to see how its explosives business will be affected.

The China Iron and Steel Association is rattling its sabre, calling for an 82 per cent cut in iron ore prices next year, bringing them back to 1994 levels.

Orica's outlook could change tomorrow depending on the latest news from its customers.

In short, uncertainty and even paranoia reigns supreme, which makes it all the more important for company boards to maintain confidence levels.

Handley's resignation from the Pac Brands board was not a vote of confidence in the management or indeed the board. He has declined to outline his reasons for leaving and some in the company defend his move by saying Handley would not have walked if he didn't have total faith in his replacement James McKenzie and the rest of the board.

Handley will remain on the board until the end of this month and retains his shareholding in the company. When he leaves the board he will not have to disclose any share sale.

The company has the best range of household brands under its control from Sheriden to Yakka to King Gee to Bonds to Berlei to Clark to Holeproof and more. But roughly $1 billion of the $2.2 billion in sales is derived from China in US dollar contracts, and while much of this is hedged, the Australian dollar has fallen some 30 per cent, which means increased costs.

This is not a great market for anyone to pass on cost hikes, especially a low margin supplier like PacBrands.

Shortly after Morphet replaced Paul Moore at the start of the year, two potential rivals left, including Moore's favourite, Steve Audsley, who now heads appliance group Breville.

Breville, the old Houseware International of course, is just under 30 per cent owned by Solly Lew.

Finance director Steve Tierney was another contender and is still at the company.

Former Yakka boss Mark Daniel also left and is now happily running Brambles' rival Loscam. Some argue Handley didn't support the Morphet appointment, but as chairman he would have had a fair say in the decision, and if he has changed his mind since then, being the one to make the original call he only has himself to blame.

Suffice it to say, Morphet had a tough job replacing Moore and this was made even tougher with the continuing credit crisis and worsening global economy.

Pac Brands was floated by private equity owner CVC in early 2004 amid a flood of private equity floats.

This came just 30 months after CVC acquired the business in the Pacific Dunlop carve up and at the time set records for PE turnarounds.

Maybe its vendors were hoping to catch the top of the wave, which netted a good profit with the $1.2 billion float.

That value has fallen 75 per cent today, but at least the private equity team, including Moore and Tierney made some money on the sale.

Sadly, today's dividend cut is but one step in the process.

Waiting around the corner are its banks, led by the big four Australian banks and HSBC. "

Not a pretty picture,more pain ahead,if dividend is suspended watch this sp drop like a stone , instos will sell,sell,sell,shorters will have a field day, seen it happen with two other stocks i own .
The possible good news,wait long enough for sp to sink to
ridiculous levels, as it does in this market ,if you think it will survive and you better DYOR very carefully ,it may become an opportunity.
Sales are the key,probably be just o.k 2nd quarter its 3rd and 4th quarter fy9 that worry me.
Can they sell some of the business to reduce debt?