Purity plans 18-month plant overhaul

Consolidated Bakeries Ltd, which trades as Purity, has warned shareholders it will take production offline at points over the next 18 months as it installs new plant.

Also, its second-half results will carry the cost of the overhaul before any benefit shows up.

The company swung to a net loss of $11.1 million in the June quarter from a profit of $5.5 million a year earlier.

“Installing and commissioning new plant requires taking existing production offline from time to time, and the company therefore anticipates periods of adjustment in output over the course of the programme,” management said in the company’s unaudited second-quarter report.

The bakery, which manufactures and distributes Purity- and Miss Birdie-branded products, said the approved capital expenditure programme extends beyond individual equipment purchases to cover plant capacity, production processes and organisational structure. The objective is to improve operational effectiveness and reliability, product consistency and waste management, and to address operational constraints that management says have affected performance.

Depreciation is already climbing ahead of those benefits. The charge rose to $14.4 million in the quarter from $9.6 million, reflecting capital investment made before the programme begins. Finance costs rose to $9.0 million from $7.1 million as borrowings funded capital spending and working capital.

“The company expects results for the second half to continue to reflect the cost of this transition, with the benefit arising in the later stages of the programme,” management said.

Revenue for the three months fell 2.7 per cent to $402.8 million, and the company recorded an operating loss of $7.6 million against an operating profit of $11.7 million a year earlier. Loss per share was $0.05.

For the six months, Consolidated Bakeries earned $18.9 million, down from $25.6 million, on revenue of $975.7 million, up 7.5 per cent from $908 million. Management attributed the year-to-date revenue gain largely to the first quarter and an earlier Easter season.

Cash generation weakened over the period. The company produced $8.6 million from operations over the half-year, down from $50.4 million, as inventories rose $19.3 million and payables and accruals fell by a similar amount. It spent $11.6 million on fixed assets, put $15.7 million into financial investments, and repaid $16.3 million in loans. Cash and equivalents ended the period at $61.9 million, down from $96.9 million at the December year end.

Long-term loans stood at $313.4 million at June 30, up from $229.4 million a year earlier, while short-term borrowings fell to $1.1 million from $52 million. Total assets were broadly flat at $2.07 billion.

The company said its priorities during the transition include maintaining service to trade customers, managing costs and procurement, and sequencing the plant works to minimise disruption. It will report on progress each quarter. The accounts were approved by the board on August 13.

carolyn.guniss@rjrgleaner.com