Company Analysis - Pacific Brands Limited - Case Study Example

Running Head: COMPANY ANALYSIS COMPANY REPORT-PACIFIC BRANDS LIMITED Company Analysis Company Report-Pacific Brands Limited [Writer’s name] [Institution’s name] Company Analysis Company Report-Pacific Brands Limited Company Overview Pacific Brands ltd is the top ranking in the market of consumer brands. It produces as well as markets them. It’s market in Australia and New Zealand. The company is changing it’s its strategic priority by increasing their manufacturing and importing from Asia (The market: Pacific Brands expands 2003 p16). Company History Pacific Brands ltd started manufacturing their brands in 1893 (Esch etal 2006 p98). In November 2001, the company was bought from Ansell Ltd, the current shareholders who invested a great deal in brand expansion and marketing and exited unsuccessful businesses (Pacific Brands 2008 p102). The group came back to its original status in April2004. Differentiating Factor Pacific Brands ltd ranks second in the list of top brand categories. The majority of its brands have become the heart beat of the Australian consumers (Featherstone 2008 p97). Their brand’s high quality gives the company a competitive advantage and thus makes them one of the top ranking brands. Nevertheless, it needs continuous brand support. Pacific Brands ltd ‘s leading position in the market gives it an advantage in operational cost as well as in the area’s of product sourcing, logistics, distribution, marketing and sales. Pacific brands have a strong team environment; apart from this their environment also encourages employee benefits (Skeffington 2005 p96). They care for their employees, even though they had to downsize their work force they gave them compensations in form of money. Economic Data Year to Jun NPAT Rep $M NPAT1 Adj $M EPS c EPS chg % PER x PER rel All Ords x PER rel Sector x DPS c Yield % Franking % ROE % 2006A 101.2 101.2 20.1 n/a 5.9 0.3 0.2 15.0 12.7 100 7.8 2007A 106.0 108.0 21.5 6.8 5.5 0.3 0.2 16.5 13.9 100 8.3 2008A 116.6 120.6 24.0 11.6 4.9 0.3 0.2 17.0 14.3 100 9.1 2009A (234.3) 102.3 17.4 -27.4 6.8 0.4 0.4 0.0 0.0 0 8.4 (James 2009 p52) Peer Comparison P/E (x) EPS Change (%) Dividend Yield (%) Company Code Last Price Mkt Cap 07A 08F 07A 08F 07A 08F Billabong International BBG $11.18 $2,840M 15.1458 16.9665 -13.7740 -10.7311 4.0250 3.6673 Fisher & Paykel Healthcare FPH $2.64 $1,361M n/a n/a n/a n/a n/a n/a Pacific Brands PBG $1.19 $1,132M 6.8080 10.8307 -27.3813 -37.1420 0.0000 1.8565 Gazal Corp GZL $1.44 $87M n/a n/a n/a n/a n/a n/a GLG Corp GLE $0.26 $19M n/a n/a n/a n/a n/a n/a (Alison 2009 p57) 3 Months (%) 6 Months (%) 12 Months (%) Pacific Brands ltd 48.1250 423.4099 -34.5593 Sector n/a n/a n/a Market 22.4133 ( Lindhe 2009 p16) 32.9523 -4.9589 Share Price Return Ratio Comparison Year Pacific Brands ltd Sector Market P/E (x) FY07 5.5 23.6 17.9 FY08 4.9 19.9 17.5 Yield (%) FY07 13.9 3.7 5.1 FY08 14.3 4.3 5.2 EV/EBIT (x) FY07 8.2 13.9 10.1 FY08 6.9 12.0 9.2 EV/EBITDA (x) FY07 7.3 11.9 8.6 FY08 6.2 10.3 7.7 (James 2009 p64) Name of Directors Directors Position S Morphet Director/CEO H Lynch Director M Ould Director A Cummins Director M Plavsic Director D Fisher Non-Executive Director J MacKenzie Chairman Dr N Scheinkestel Non- Executive Director Name Of Managers Name Position S Audsley Chief Financial Officer S Tierney GM Operations R Rostolis GM Corporate Development S Morphet CEO R Taylor GM Outerwear & Sport I Barton GM Home Comfort M Ford GM Footwear (Pacific Brands Limited 2009) Substantial Shareholders (Stephen 2008 p1) Relations Labour force Pacific brands have been good to their employees, but recently their labour face has faced a lot of problems as it has had to do some down sizing in February. Pacific Brands Limited made a public announcement that it would have to do a completely down size the labour force, about 1800 employees lost their jobs. The majority of these jobs were of those employees who were in the manufacturing department of the organization. Apart from the downsizing a few site were closed down due to which the labour at entire manufacturing site s lost their jobs. These included Cessnock, Bellambi, Wentworthville and Unanderra. How ever as mentioned earlier the organization has always been good to its employees so it gave then entitlements. Corporate Governance Pacific Brands’ directors and management are committed to conducting the Company’s business ethically and in accordance with high standards of corporate governance. Good corporate governance structures encourage companies to create value for shareholders through sensible risk taking, but provide accountability and control systems commensurate with the risks involved. This statement describes Pacific Brands’ approach to corporate governance. The Board believes that the Company’s policies and practices comply in all substantial respects with the Australian Securities Exchange (‘ASX’) Corporate Governance Council’s Corporate Governance Principles and Recommendations. A checklist summarizing this is found in section 11 of this Statement. (Corporate Governance Statement 2009 p16) SWOT Analysis Matrix- Pacific Brands Limited (PBG) Environment Company Components Strengths Weaknesses Opportunities Threats MEGA:* Technological The company component here according to porter’s 5 would be new technology used for the foam. Over here inorder to reduce the barriers of entry new technology was used Pacific Brands used the best and latest technology for their products. A good example of this the technology they updated in their furniture and foam brands. They use sustainable manufacturing as a they have an enthusiasm for on-shore and export growth which is continuously maintained via technology and a educated, competent workers," Pacific Brands decided to merge with Vita NZ so that they could work together on technology development in order to carry on their continuous improvement These resources will provide Pacific Brands' with the scale they require to guarantee that capable workers as well as high-technology production plants carry on to being maintained continuously technology and knowledge There is no doubt Vita is poised for much better chances and has the ability to be a international competitor due to it’s technology Pacific Brands choose Vita I for a merger as it is also devoted to future development both inside New Zealand as well as off shore by means of exports, mainly in furniture. Economic According to porter’s 5 the buyer power here is what is being used The company component is the reduction in sales The numerous amount of brands produced by them allows their shares to fall only a little, thus there shares can never drastically fall Pacific Brands share price does not effect it’s reputation in the market it still produces the best quality products for it’s customers (Biederman 2005 p14) The fact that the world is going through an economic recession and that their shares are falling still shareholders don’t want to sell their shares. as they have trust in the company. Pacific brand’s dividend policy' is what helps to sell it’s shares and thus result in a good market value The company’s investment and profits have always been sky-high It has seen a lot of hard economic times however it has had enough support from the hare holders to face the loss. Pacific brands has always been able to pay off all it’s credit which it has taken from banks or other wise The company, whose major brands include Bonds, Berlei and Holeproof and whose lead shareholders are Axa Group and Commonwealth Bank, has seen its share price lose support dramatically, plunging 82 per cent since January. Pacific Brands share price last week alone dropped by 22 per cent (Alison 2009 p57) The stock price fall was a result of a number of factors: speculation of an equity capital raising; worsening economic and retail conditions; and currency swings. Pacific Brands was not taking into consideration an equity capital raising however keeping in mind that the ongoing fall in economic and retail conditions it has to now reconsider its entire dividend policy''. The company didn't detail the specific options being studied and said it would update investors soon. The Victorian-based company had consistently paid a dividend payout ratio of about 73 per cent of net profit since its 2004 market listing (Prendergast 208 p289). Pacific brands claims of a credit drought was tested against the insistence of the big banks that it has nothing to do with them. As many of the economies with whom Australia does business are in recession, we will not be immune from their troubles apparel and homewares Pacific Brands is the latest Australian company to slash its expected dividend payout in order to cut debt and survive the economic downturn Its share price hit new lows, partly on worries over its $742.7 million debt burden, some $550 million of which is estimated to be due for rollover before March 1, 2010. Analysts have estimated 49 per cent of PacBrands' sales stem from footwear, Manchester and sporting equipment, each of which depends largely on consumer discretionary spending. Australia's leading Pacific Brands, is reviewing its dividend payout as it braces its balance sheet amid the economic downturn After notching up 11 per cent profit growth in fiscal 2008, in October it warned that fiscal 2009 profit would be ``flat at best'' due to significantly greater weakness in retailer and consumer sentiment Sharp falls in consumer discretionary spending have hit the Australian and New Zealand economies. New Zealand is officially in recession while analysts see Australia treading close to recession for some months, if not slipping into outright recession, as the global economy stalls amid the fallout from the credit crunch. The banks claimed that any funding shortages are due to the virtual disappearance of the whole second tier of financial institutions and weaker demand rather than any added restrictions on their part. Legal-Political Against here barriers of entry is what the company is facing as the major component here is the political pressure not to downsize Pacific Brands Sport and Leisure Pty Ltd v Underworks Pty Ltd [2005] (entire case given above). Unfortunately for those sacked Pacific Brand workers, but fortunately for any version of policy sanity, the Government is not going to be able to save their jobs The suggestions coming out of Canberra that it might be able to persuade the company to change its mind fall under the heading of political tea and sympathy. Pacific Brands case did not cause a lot of chaos in the business world as it was not anything out of the ordinary That these options are even being raised reflects the increasingly desperate realization that business conditions are deteriorating rapidly. In a number of cases, like Pacific Brands, such an intolerant climate only increases the chance of the predictable, long-term loss of job in the clothing field. . Pacific Brands was determined to relieve Underworks of its duties. It was wanted to put as many hurdles as it would in the front of Underworks so that it would to violate and end the sub- license (Colin& John .2006 p749) The company does have an opportunity to calm down the issue as there is a possibility that the fact that it is giving entailments to the employees it is firing This case can make Pacific Brands b be highlighted however wrong it was they did not loose their determination to make Underworks violate and end the sub- license. The company’s downsizing had become a political issue Despite the Government's focus on the issue, any prospect of Canberra setting up another special fund to try to fill the credit gap is as fanciful as the banks taking on substantial quantities of new, high-risk loans. Reputation and trust can be tarnished in the industry Socio-Cultural company competent here is Sponsorship in order to show good will Pacific Brands has sponsored for the extravagant Melbourne Fashion Festival in spite of the fact that it had to fire a lot of his employees. It has given the festival $500,000 for it’s sponsorship(Lindhe 2009 p13) Their reputation regarding downsizing employee as they did not have enough money to pay them However the amount they paid is so large that they cannot just avoid taking it. Thus Pacific Brands is doing its part by sponsoring this grand fashion event. People will protest against the sponsor as they had said they have no money to pay to the employees such sponsor could tarnish the reputation of the festival International The company competent here is to reduce complexity so that the products can be properly manufactured and distributed. According to porter’s 5 this comes under threat of substitutes First and foremost it completely focuses on distinctiveness and quality of the product. It keeps quantity as secondary. Another strength of the company is that its brand excellence is completed made by using insight and thus creating tighter propositions. The fact that the company distributes their resources according to their brand opportunities makes it lead the top brands in the market. Thus this too serves as strength for them. Pacific brands have always believed in closely controlled product development to avoid errors that may cause problems in the entire production. This one of their most valued strengths. Pacific brands entire team from product designer are continuously on their toes thinking about the cost as well as the characteristics of the products. Driving efficiencies along with the company’s constant development makes it a milestone in the industry. Most of their businesses are consolidated this reduces the reporting lines thus making communication and maintenance off all the products successful. Pacific brands keep extremely transparent costs of their products. They use KPIs for their production this serves as a major strength . They have developed too many brands. And thus they have to look after all these brands which at times may cause them to overlook major errors in a brand. Apart from this these unlimited number of brands have caused a lot of complexity in their systems. They don’t maintain their consistency in the process and procedures as there are too many brands to handle. At times the business also has to face a lot of extra costs as each and every brands needs to be looked after. Even their external as well as internal organic growth has becomes extremely slow. Their development seems to slow down due to the economic conditions There are too many bands which interfere with the quality of the reporting lines as they become complex. At times their costs are too high for the average customer. Often however, maintenance metrics are worthless since they do not provide worthwhile indications of maintenance performance, particularly when this performance is below acceptable levels By reducing their complexity and by paying complete attention to decision making, Pacific Brands can easily over come its threats and weakness and maintain its reputation. The market may hold potential for them if they become more organized and sell-out their less profit producing brands The fact that their share holders may still be interested in their development gives them a chance ion the market Every brand is so frequently changed that the it is quite possible that it may be the #1 name in the industry Pacific brands keep updating and re designing their sourcing systems which serves as a major strength for them in a market where competition is strong. Flawless communication among their business opens up many export opportunities for them as they ensure delivery on time. The fact that they keep their prices transparent may attract a lot of customers KPIs are closely aligned to strategic company goals and implemented thus there are chances that it will support positive change It’s threats lye in the fact that if it does not do anything about the complexity and unlimited brands then it may loose it’s place in the market It’s competitors don’t have a lot of brands and thus they may soon have an upper hand Threats lye in the fact that the economic conditioned have badly effected their production Their own customers are becoming their competitors and thus there many brands may be danger However they have so many brands that it can only make minor changes in each The fact that many of their business have not been able to perform as good as they were due to these reporting lines may cause them to loose a lot of their customers. They need to lower their prices or their competitors will take the lead. However KPI could even cause them to face a lot of losses as key performance indicators vary from one company and industry to another. This is because one company has a different strategy from others. # TASK: * Customers/clients The company component here is their top customers. However according to porter 5 it comes under buyer power Pacific Brands ltd 's top customers • Best & Less • Big W • David Jones • Kmart • Lowes • Myer • Payless Shoes • Target • Woolworths Their weakness lye in the fact they don’t provide their customers and clients with a simple system of distribution As they have many of the top departmental stores as their customers and clients they can easily introduce more new products and market them in these departmental stores. Coles Myer and Woolworths are the company's major customers have always been Pacific brands top customers infact most of their sales are due to them. But now Pacific brands face great threats from them, as there is a risk that their two top customers are starting their own brands and thus will be their competitors and not customers. # Competitors The company component here is that it is top ranking However according to porter 5 it comes under degree of rivalry As Pacific Brands ltd hold the top rank in very industry operates, thus its direct competition is extremely restricted. However the fact that their products are so many that they have many competitors. Even though, as it was observed in FY06, the prices of their hosiery and underwear may have impact on the competitors . The competitors now may there own customers and thus they know the exact quality of their products # Suppliers company component here is to satisfy the supplier However according to porter 5 it comes under supplier power The suppliers are more than 170 The fact that they had to fire their employees due to economic difficulty has made their suppliers think twice Having so many suppliers could prove to be beneficial as if one doesn’t want they require the other does thus they always maintain their quality The company may cut ties with as many as 170 suppliers as it progresses talks with parties over the divestment of properties, brands and non-core assets that represent about 22% of group sales. Labour supply company component here is the downsizing of employees barriers of entry is what the company is facing They have the best and most efficient workforce in the entire industry. Due to financial difficulties they had to fire 1850 their employees due to economic difficulty. Pacific Brands has an ongoing commitment to providing a responsible working environment for all of our employees. It faces threats that if they keep down sizing they may loose ea very effective workforce Government agencies (esp. regulatory agencies ) company component here is to satisfy the supplier However according to porter 5 it comes under supplier power Pacific Brands currently supply a number of State and Federal Government agencies including the Australian Defence Force, Victoria Police, NSW Fire Brigade and Queensland ambulance services The organization cannot do much if the agencies decide to end their contract Pacific brands may still get back the contract as Michele O’Neil. Publicly asked why the government was not reissuing their contract Government is now considering a tender for a $40 million Defence Force contract for non-combat uniforms. Some of the companies who are tending for that work intend to make it offshore. Porter’s 5 forces Bargaining Power of Suppliers The power of suppliers of Pacific Brands could be considered medium. The industry is 100% dependable on a supplier that can assure a supreme quality (Llyod 2007n p12). However the supplier has limited choices since the market is controlled by few operators. Bargaining Power of Customers Considering the buyer as the final consume of Pacific Brands; where the decision to buy is nurtured by the fantasy and desire of style; buyers would only buy if all their expectations are fulfilled. In this context it is considered to be a medium competitive pressure since buyers can easily switch brands (Sibillin 2007 p52). However brand awareness and uniqueness can prevent the easy switching. Threat of New Entrants The risk coming from new entrants for Pacific Brands is low, except perhaps, for the development of niche brands that can slowly earn a position. The strong financial resources and the "story" of the brand that is needed to succeed are two elements that create a barrier (Australia's Swan: Local Manufacturing Sector Viable 2009). a brand needs a heritage; you can not cross cut and succeed Furthermore financial resources are very expensive since lenders perceive that the expected margins are difficult to get; thus it is hard for smaller companies to access financial markets. Additionally the fact that the company is characterized global from the very beginning makes it difficult for New Entrants. Brands can not survive relying on domestic markets. Threat of Substitutes Broadly speaking, threat from substitutes for Pacific Brands very low. Only products from different segments might work as product to product substitutes. In times of economic recession, people may shift from their brands. And in times of economic development, people have more disposable income and accordingly more interest in products which re related to clothing then their hush puppies (Lloyd 2009 p56). This means that hush puppies has the threat of substitutes more then the other products . Competitive Rivalry between Existing Players Competition for Pacific Brands comes from two aspects. Price-sensitivity feature is very likely to lead to a price battle which will finally squeeze out profits. A number of firms competing erode pacific brand’s market share. Thus their potential existing players i.e. Coles Myer and Woolworths may take the lead. Conclusion The above SWOT and Porter5 analysis describes an industry with a medium to high competitive pressure. The industry is attractive in terms of profits for players that are already in the field. Well managed companies with sound strategies can earn profits. The strength of a big company plus the flexibility and focus of a small business would be the rule. The ability to vertically/horizontally integrate and find synergies between the different sectors and the ability to maintain the energy and identity of each brand are two fundamental attributes of the future of the fantasy industry. References Alison Bell (2009); Pacific Brands Slumps Courier Mail, the (Brisbane), p57-57, Australia's Swan: Local Manufacturing Sector Viable 2009 retrieved from WSJ online on 3 October 2009 Biederman, David (2005); Hazards Of outsourcing. Journal of Commerce Vol. 6 Issue 46, p14-17, Colin Pearson & John Davidson-Kelly (2006); Australian court holds that sublicensor cannot validly assign brand management and termination rights Journal of Intellectual Property Law & Practice 1(12):749-751 Corporate Governance Statement 2009 p16 Retrieved from www.pacificbrands.com.au on 3 October 2009 Esch, F.R., Langner, T., Schmitt, B.H., Geus, P. (2006), "Are brands forever? How brand knowledge and relationships affect current and future purchases", Journal of Product & Brand Management, Vol. 15 No.2, pp.98-105. Featherstone, Tony (2008); Brand stand, BRW; Vol. 30 Issue 25, p97-97 James, David (2009); Market Update. BRW, Vol. 31 Issue 9, p64-64. James, David (2009); The More Things Change BRW, Vol. 31 Issue 10, p52-53, Lindhe, Jane (2009); Fashion Season Stylishly Small BRW Vol. 31 Issue 10, p13 Lindhe, Jane (2009); Week in Review. BRW, Vol. 31 Issue 9, p16-17, Lloyd, Simon (2009); Brands prevail BRW, Vol. 24 Issue 48, p56 Llyod, Simon. (2004) Brand Values Surge BRW, Vol. 26 Issue 45, p12-15 Pacific Brands (2008); BRW, Vol. 30 Issue 34, p102 Pacific Brands Limited (2009) retrieved from http://www.asx.com.au/asx/research/companyInfo.do?by=asxCode&asxCode=PBG on 3 October 2009 Prendergast, Gerard P.; Poon, Derek T. Y.; Tsang, Alex S. L.; Van Fan, Ting. (2008), “Predicting Premium Proneness,” Journal of Advertising Research, 48 (2), 287-296. Sibillin, Anthony (2007); Feel The Difference BRW, Vol. 29 Issue 48, p52-53, Skeffington, Robert (2005); Pacific Brands' Sales Ease. BRW, Vol. 27 Issue 8, p96-96, Stephen Mcmahon (2008); Pacific Focus on Power Brands Mercury, The Hobart The Market: Pacific Brands Expands (2003). BRW, Vol. 25 Issue 31, p1 Read More