Pacific Brands yesterday delivered bad news for shareholders and worse news for workers. The Melbourne-based manufacturer and announced that it will close seven factories in Victoria, New South Wales and Queensland by 2010, leaving 1850 workers unemployed. Pacific Brands also announced a net loss of $150 million, a 5.2% fall in revenue and stated that no dividend would be paid to shareholders. The scale of the job losses even caused Kevin Rudd, the Minister for Working Families, to note that “this is devastating and distressing news for the workers concerned.”
The financial loss was caused by non-cash ‘impairment losses’ of $206 million and reversed a $57 million loss for the corresponding period in 2007 (worryingly though, Pac Brands’ operating cash flow also reversed from $48 million to an outflow of $19.4 million this year). The decision to slash 1850 jobs did little to appease shareholders, with PBG shares slumping by 37% to 22 cents. Pacific Brands’ balance sheet is largely made up of intangibles (specifically brands such as Bonds and King Gee), with the company’s tangible assets dwarfed by interest bearing loans of $905 million.
Pacific Brands’ downfall has been rapid — as recently as September 2007 its shares were trading at $3.50. In the space of less than 18 months, they have dropped by 93%.
While shareholders and local employees have suffered from the company’s downfall, the pain hasn’t been felt by all. Former CEO, Paul Moore, who was heavily involved in the private equity buy-out (and subsequent IPO) of the company was well rewarded for his efforts. Moore was appointed managing director of Pac Brands in 1999 and became CEO in 2001, when the business was subject to a leveraged buy out by CVC and Catalyst. The company’s prospectus reveals (at page 107) that when Pac Brands re-listed on the ASX in 2004 at $2.50 per share, Moore received approximately $17 million for his equity stake (Moore then reinvested around $3 million of the proceeds back into the company).
For the year ending June 2007, Moore was paid $1.96 million for his role as CEO, the vast majority of that remunerations was paid in cash, rather than scrip.
In the 2008 financial year, the Pacific Board was even more generous. Despite only working for six months (Moore resigned on 31 December 2007), the former CEO received a base salary of $1.56 million for the year ending 30 June, 2008 — equivalent to a full-year salary of $3.1 million (the previous year, Moore received a base salary of $1.2 million for 12 months’ work). Pacific Brands provided shareholders with no explanation for the sudden 160% increase in Moore’s base wage.
Moore also received a short-term incentive payment of $525,000 for the period ending 31 December, 2007 — up from $250,000 the previous year. In pro-rata terms, this represented a rise of more than 300%. The bonus was paid after Pacific Brands recorded an increase in earning before interest and tax exceeding 17.6%. As the bonus was paid in cash, Moore’s bonus payment will not be effected by the company recording a $150 million loss six months later.
Not content with base salary tripling and his short-term bonus quadrupling, the Pacific Brands board, led by the now-departed American Pat Handley, also resolved to pay Moore a “retirement payment” of $3.448 million. The payment was not contractually due to Moore, as he chose to retire (he was not terminated by the company). Pacific Brands did not provide any explanation to shareholders as to the rationale for paying $3.5 million of shareholder funds to a departing executive who had received $17 million four years earlier on top of almost $2 million cash for six months’ work. The golden parachute paid to Moore remains all the more remarkable given that since listing, under Moore’s stewardship, Pacific Brands investors have lost 91% of their initial capital investment.
In light of the announced job losses, the remuneration paid to Moore appears even more difficult to justify. The amount paid to Moore in his last 18 months at Pacific Brands ($7.82 million) would have kept 130 low-paid Pacific Brands workers employed for a whole year.
It was also revealed by the ACTU that Pacific Brands received more than $17 million in taxpayer funding since 2006. That funding was specifically provided to keep manufacturing operations in Australia. Much like the US banks which received taxpayer bailout funding with one hand and paid similar amounts of cash to employees and executives with the other — the taxpayer’s generosity did not appear to end up where it was intended, as 1850 soon-to-be-former manufacturing workers will attest.