Well, you can take the brands out of the company, but you
can’t take the company out of the brands! Sounds Delphic? Yep, when it relates
to Pacific Brands, you bet! Revenue down, profits sort of on track (but not
brilliant) a very high dividend payout, more than a billion dollars in
intangible assets (trade marks etc).

It’s Pacific Dunlop all over again, without the food
debacle. Here’s the ABC’s report on the interim result out yesterday
and the announcement
itself from the company is here.

Looking at the figures it’s no wonder the shares fell 25c
yesterday to $2.80. It is now heading back towards the $2.60 mark, the level at
which it floated on the market about a year ago.

Earnings per share of 6.6c were exceeded by the interim
dividend of 7.5c fully franked. That will take $37 million or so to meet. Net
earnings were $33.3 million. So it’s into reserves (or off to the bank!) to keep
faith with shareholders.

Where’s the sense in that?

You’d be right in wondering if many of the brands, Berlei,
Holeproof, Bonds etc were all part of Pacific Dunlop at some stage in another
life, and they were.

And you’d also be right in wondering whether it is going to
be an action replay of the spluttering, wondering life that PacDun lived while
it had all these clothing and footwear brands and the Ansell ‘health’ products.

>Ansell is now a separate company and the rump of the old
PacDun. The clothing and footwear were sold off to a venture capital company
which employed new managers, fixed up the balance sheet and then floated it at
the end of 2003 and early 2004. Pacific Brands was formed to be the vehicle and it’s not
been a brilliant performer.

Now revenue has fallen for many of the brands and overall,
although the company says it’s on track to make forecast profits.

But revenue should have at least grown in the six months to
the end of December; it’s the best time of the year for business, especially
those in the retail business like Pacific Brands is.

But the slowing retail environment with Coles Myer and
Woolworths having sales and feeling the pinch of hesitant consumers, especially
in their discount chains, should be a worry for Pacific Brands.

However there’s not much recognition of those problems.
There’s just the optimism of a group of managers and a board who can’t see
history repeating itself.

The stronger dollar should have helped sales and profits
because the company imports so much from overseas, especially China.
But China
slapped on a tax on clothing exports to slow sales to try and lessen fiction in
some major markets, such as Europe and the US.

That’s meant any benefits from lower tariffs here and the
high dollar have been lapped up by the Chinese export taxes.

Some customers, such as Coles Myer are importing direct from
China and
bypassing Pacific Brands.

That’s bad news not recognized, yet, by the board.

Looking at the board they are not the sort to inspire you
with an action plan to handle a slowing sales environment. Chairman Pat Handley
is a former banker at Westpac, Helen Lynch, also a former Westpacer, has retail
experience on the board of Coles Myer and OPSM but not in the nitty gritty of
importing and marketing clothing and footwear. Max Ould is a former CEO of
National Foods, the dairy company and selling perishables such as milk is
vastly different to selling clothing and footwear.

Another director is Maureen Plavsic, a former CEO at Seven
Network. No retail or ragtrading skills there.

They have to contend with a company whose financial
structure after the float is not conducive to a long life. Intangible assets of
$1.179 billion form the single largest asset. With net assets of $1.249
billion, Pac Dun only has ‘real assets’ of $70 million or so.

Its cash reserves are around $56 million and that will be
reduced to meet the shortfall in the dividend payment of 0.9c a share. Net
tangible assets are only 14c a share.

The intangibles really represent the money taken out of the
company by the float and returns to the sponsoring venture capitalists.

Of course the various brands have value, but to carry them
in the balance sheet at present levels (even after some gentle write downs)
you’d be wanting to see some sales growth to justify the present values.

But growth is non-existent and sales went backwards in the
half.

This could very well be a company condemned to re-live its
past.

Heaven help Pacific Brands if Australia
ever signs anything remotely approaching a Free Trade Agreement with China.