1. Consumer Products
Executive General Manager’s Report
Business: Nylex Consumer Australia
Month: June 2008
1. Operating Summary
The table below summarises key financial data
YTD YTD YTD YTD
Act. Plan Act. Plan
Sales (net) 3,144 7,663 56,207 94,264 60,521 101,388 Debtors 3,687 7,200 66,726 101,835 71,471 111,107
GM 938 2,501 17,496 30,902 19,066 33,213 Other - - - - - -
GM% 29.83% 32.64% 31.13% 32.78% 31.50% 32.76% Total Receipts 3,687 7,200 66,726 101,835 71,471 111,107
Selling 644 804 7,428 9,194 8,050 9,970 Creditors 5,314 4,723 55,037 81,151 58,951 85,693
Dist'n 793 929 9,984 11,302 10,777 12,191 Payroll 587 826 7,539 9,114 9,207 9,954
Admin 191 203 1,994 2,319 2,245 2,521 Capex - - 44 - 100 -
Other 16 17 322 188 363 205 Restructure - - - - - -
Acis/Sip - - - - - - Other 149 186 2,727 3,031 3,174 3,211
EBIT (705) 548 (2,233) 7,899 (2,368) 8,326 Net Cashflow (2,363) 1,465 1,379 8,539 39 12,249
P&L($'000) Act. Plan F/yr. Fcst F/Yr Plan F/Yr PlanCash flow($'000) Act. Plan F/yr. Fcst
2. Sales/Gross Margin
2.1. Sales
Sales (before rebates) for May were $155k below the May forecast, $4,904k below budget and $4,310k
below last year..
The table below compares the gross sales result for the month to May forecast, budget and last year for
the month and year to date:
Actual Forecast Budget L/Year Actual Budget L/Year
Building & Industrial 1,844 2,805 2,527 21,243 28,748 28,897
Water 145 2,964 3,278 5,987 28,118 16,755
Garden 990 1,809 1,202 21,179 30,974 26,468
Home & Leisure 575 871 768 14,229 16,090 14,064
Other (9) - 80 58 - 278
Sales 3,545 3,700 8,449 7,855 62,696 103,930 86,462
Sales Summary - $000
Current Month Year to Date
Rebates as a percentage of net sales were 12.7% in May, compared with the budgeted 10.3% and last
year at 7.7%.
Below are comments on sales by category. The comments are based on the sales forecast included in
the table above for the month:
2.1.1. Building & Industrial
• Building products are still down due to slow down in construction sector and stock run-downs by
major distributors and retailers.
• Loose nails, SDS, rivets and bolts are all down between 10-15% on last year and are reportedly
similar for most major competitors.
• The SENCO re-launch continues to drive new opportunities and increased share. Pre-selling
activities/results for the Gas Launch and the EOFY catalogue are exceeding expectations. Sales
from these activities will be realised in June.
• Other major initiatives including the “wall frame & truss” and “pallet” focus are starting to show
positive results. Another 5 truss and frame plants converted to Nylex in April.
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2. 2.1.2. Home & Leisure.
• After a great season the result this month for Esky was disappointing. All major customers are
continuing to run stock levels down of non-core categories and reluctant to promote.
• Bunnings, Big W, Mitre 10 and Danks have confirmed ranging for F09 with increased numbers of
SKU’s supported. They have reduced the Willow range and extended Esky. Nylex has been
appointed the category captain for the Cooler Category in Mitre 10.
• Several promotional lines have been sold in for next season including once off volume
opportunities for a Black 27 litre to Bunnings (7,000 units, could be 20,000 units if successful on
the first run) and a printed 27 litre with Australian flag to Big W (8,000 units). Both are Seaford
products.
• Woolworths confirmed that they will not be supporting Esky in F09 due to low unit pull through in
F08. They look forward to seeing a submission next year with a range tailored for their
demographic and have supplied us where they believe the opportunities lie. They are still
considering some promotional opportunities for F09.
2.1.3. Water
• Sales levels reflect market conditions and activity. Reductions compared with forecast were in
domestic, rural and industrial water storage/tanks.
• Mitre 10 has appointed Nylex and TankMaster as their primary suppliers. Whilst this
appointment is good, stores will make their own decisions. M10 does not promote the category
through their National catalogues.
• Omega is progressing well as an opportunity to promote the Nylex brand through the
catalogues. A decision on Omega is imminent.
• There is no real news on Bunnings as they continue to fight through the changing market.
They have put all suppliers on hold and stores cannot order new tanks unless with the express
written permission of the buyer. They have now marked down all tanks by another 30% to around
50% to 70% below original retail prices to clear stocks before the end of the financial year.
2.1.4. Garden
• Garden is down on forecast with most of this in garden hose and Gardena groups.
• Most of the major customers have also not made final ranging decisions for FY09 and
consequently they are also running down stock levels of fittings and associated products.
• All major customers and competitors continue to report sales in garden watering down by
between 30% and 60% since January and are taking action to minimise exposure to stock.
• Mitre 10 filed a claim to return $620k of stock from their DC’s. After our analysis, feedback and
negotiation, this was reduced to less than $30k. This claim was also placed on all other suppliers
and is reflective of their position. Danks have also put a claim in for $80k which we have rejected.
• Significant “end of season” offers are still being made to the majors to try and move volumes of
stock in preparation for next season’s new lines.
2.1.5. Major Tenders Underway
• The BlueScope tender for SDS and rivets has been submitted. A meeting was held at Somerton
with key Bluescope decision makers in April with good feedback. BlueScope is currently testing
and assessing Nylex product.
• SENCO Gas pre-sell was extremely successful with over 1,000 units ($650k) pre-sold. 480
available for June supply with next containers not due until late July. NatBuild have ordered 400,
Glenfords 150.
• M10 have accepted core range of SENCO fasteners into their DC’s (induction early July) and
have confirmed October promotion for gas tools, cells and fasteners.
• Bunnings have confirmed Esky ranging for F09 with increased ranging. Plans for pre-season
stock build in stores and promotional program including limited edition Black Esky ex-Seaford.
• Big W have confirmed Esky ranging for F09 with increased ranging including a limited edition
printed Esky with Aust flag design.
• F09 season submissions and Nylex garden strategy presentations are being rolled out to all Tier
2 customers.
• Below are major submissions and tenders currently being worked on or submitted pending
outcome:
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3. Customer Product group
Current
Business
at Risk
$000
Opportunity
(Total
value)
$000
Submitted
MM/YY
Anticipated
decision
date
MM/YY
Sales to be
realised
MM/YY
Bunnings
Poly Shade - $200 07-08 08-08 10-08
SENCO Gas Nails - $1,500 06-08* 07-08 08-08
Rivets $450 $2,500 07-08* 08-08 10-08
SENCO $1,500 $4,000 04-08 07-08 08-08
Water Tanks $5,000 $12,000 04-08 06-08 07-08
Nylex Courtyard Tank
Series
- $2,000 05-08* 06-08 07-08
Danks
CVT Pre-Pack - $200 07-08 08-08 10-08
Water Conservation $100 $300 04-08 06-08 08-08
Rivets $200 $1,000 06-08* 07-08 09-08
SENCO - $1,000 03-08* 06-08 07-08
Mitre 10
CVT Pre-Pack - $300 07-08 08-08 10-08
Nylex Courtyard Tank
Series
- $1,000 05-08 06-08 08-08
Water Tanks $2,000 $4,000 05-08* 06-08 07-08
SENCO - $3,000 04-08 05-08 07-08
Kmart
Nylex Courtyard Tank
Series
- $1,500 05-08* 06-08 07-08
Big W
Esky $3,000 $5,000 03-08 06-08 08-08
Nylex Courtyard Tank
Series
- $1,500 05-08* 06-08 07-08
BlueScope SDS - $3,000 12-07* 07-08 08-08
NatBuild
Tanks - $2,000 06-08 07-08 07-08
Rivets $100 $400 04-08* 07-08 08-08
* Submissions currently being worked on - date shown is submission date.
2.2. Gross Margin
• Gross margin at $938k was $193k below forecast, $1,563k below budget and $1,366k below last
year. At 26.5% of net sales it was under budget and last year.
• Gross margin before rebates and factory overheads was 38.0%, slightly below our forecast of 38.8%.
• The gross margin included a stocktake swellage of $11k, a manufacturing gain of $8k in the nail
operations, and a $29k adjustment to the obsolete stock provision to reflect the reconciled balance.
3. EBIT and Overheads
Actual Budget L/Year Actual Budget L/Year
Selling/Marketing 644 804 890 7,428 9,194 7,536
Distribution 793 929 933 9,984 11,302 11,635
Administration 191 203 220 1,994 2,319 2,338
Other 16 17 0 322 188 163
Total Overheads 1,643 1,953 2,043 19,728 23,003 21,672
Selling/Marketing 20.5% 10.5% 12.2% 13.2% 9.8% 9.6%
Distribution 25.2% 12.1% 12.8% 17.8% 12.0% 14.8%
Administration 6.1% 2.6% 3.0% 3.5% 2.5% 3.0%
Other 0.5% 0.2% 0.0% 0.6% 0.2% 0.2%
Total Overheads 52.3% 25.5% 28.0% 35.1% 24.4% 27.6%
Overhead Summary - % to Net Sales (less Rebates)
Overhead Summary - $000
Current Month Year to Date
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4. • The EBIT loss for the month has been positively impacted by lower overhead costs compared with
budget but costs were higher than forecast for May as Advertising/Marketing spend was $160k for the
month compared with the forecast $50k. $73k of the spend was for Hulsbosch for the set-up of the
new Nylex water/garden range.
• Warehousing and freight (including warehouse rental) costs were in line with our forecast. We
continue to focus heavily on freight costs and have engaged our freight provider to implement a
significant piece of work to manage freight cost allocation and tracking on a real time basis.
• Administration costs were $10k below forecast.
• Total overhead labour costs (included in the above) at $639k are 18% below the budgeted $776k.
Overall headcount in Consumer Australia is 22 FTE’s below budget. There were 8 less in the
Warehouses, 5 less in Marketing, 4 less in Sales, 3 less in Customer Service and 2 less in the
Administration.
4. Net Cash Flow
• Net cash outflow for the month was $2.4m; year to date overall cash inflow is approximately quarter of
budget at $1.4m.
• Lower than budgeted cash receipts from trading were compounded with the payment required to Fitt
(who are paid on 180 day trading terms - $2.6m).
5. Return on Net Assets
• Net assets are $4.75m lower than budgeted and $4.49m lower than last year. This is due to working
capital ($5.29m under budget). Debtors are $8.67m under budget reflecting lower sales. Collection
days are 50 (budget 52). Inventory is over budget by $1.27m and stock days are at 190 days (budget
100, last year 136).
• Year to date RONA% is -8.3% compared with the budgeted 24.9% and last year at 8.5%.
• Aside from sales, inventory management is our highest priority with continued focus on slow and
obsolete lines and “deals” to secure sales to major customer groups. The reason for the higher than
budget stock days is the decline in retail market performance (with some of our customers reporting
sales 30% lower than last year).
• The table below summarises the balance sheet and the calculation of RONA %.
Funds Employed
Actual
$000
Budget
$000
L/Year
$000
FYear Bud
$000
Inventory 18,456 17,184 21,021 16,547
Debtors (net) 5,559 14,233 10,628 12,778
Creditors 4,422 4,985 6,559 6,217
Intercoys (555) (2,101) (2,109) (1,898)
Working Capital 19,038 24,331 22,981 21,210
Net Assets Emp 27,561 32,314 32,055 29,031
EBIT (Ytd) (2,233) 7,899 2,358 8,326
Annualised RONA - % -8.3% 24.9% 8.5% 28.7%
Return on Net Assets -Year to Date
6. Other Business Issues
6.1. Operations
6.1.1. Freight and Warehouse Management
• Consumer freight review has been completed with new rate structure agreed & currently
being implemented. This is in combination with the FMS (freight management system)
will give consumer accurate data in the freight component of customer profitability
analysis.
• A three month assessment period has been entered into with carrier to prove that the
cost and service model is being delivered as promised. Then an agreement will be
reviewed.
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5. • Major issue for consideration is he impact of fuel surcharges. This is currently being
examined in detail
6.1.2. Service Levels
LIFOT performance for the month was 83.0% compared with the targeted 95% and LY of
86.2%.
LIFOT has been impacted by:
STO's not being sent in order to reduce transport costs. But overall there is sufficient
stock nationally but in a number of instances it is located in the wrong warehouse.
Trellis supply: The negotiations between Nylex and Gale Pacific Management about
price/supply have been resolved. However we are reviewing our obligations to them
given the exorbitant increase in prices advised to us since they moved their machinery
back to Australia from New Zealand.
6.2. Marketing
6.2.1. New Product Development
• Garden
Both the Tecnotubi and Claber Agreements are now ready for presentation to the
Board. Orders on both suppliers are progressing well and importantly have been
aggregated for both Australia and New Zealand for the first time.
With the resignation of Kane Wright, Lena Chapman has taken on the role of Garden
Category Marketing Manager for Australia and New Zealand. This has proved
invaluable in terms of relationships with our Italian suppliers and a comprehensive
understanding of this category. An update on discussions with Gardena through our
lawyers will be provided at the Board meeting.
• Senco
Representatives of Senco’s newly established Global Fastening Solutions team
visited Australia and New Zealand to re-establish relationships, better understand the
market and present the product cycle and planned initiatives.
Nylex were presented with some details about the TyRex range of masonry and
concrete fasteners and we have expressed interest in these new products. Senco
are also considering other distributors for this range of specialist tools and it is likely
that given the shared product platforms that such a distribution model may cause
confusion in the market, particularly with the repair network.
• Ajax
The joint Ajax/Senco catalogue is now in the hands of our sales team and customer
feedback to date has been very positive.
In order to revitalise the Ajax product range, a complete redevelopment of the
packaging is being undertaken jointly between Australia and New Zealand. The Ajax
packaging has become dated and urgently requires attention in order to regain shelf
presence and ranging.
• Esky
Contrary to previous notes, new products in this category will not be introduced under
a secondary label. However, ‘Chilla’ may be used as an entry name within the Esky
range.
Review of the portfolio of products has been conducted primarily with respect to
manufacture at Seaford.
This process is also underway for Cover-It which has more recently been sourced
from China and could well be re-sourced from Sale.
6.2.2. Other Marketing Initiatives
• Brand Campaign
Big Red has been briefed to develop a brand campaign to launch Nylex into the
‘water’ space encompassing tanks, hoses, hose fittings, water-retention and pool
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6. membranes and Aquacap. This should allow us to leverage economies of scale in
creative development and also in production. Such a campaign is required to protect
our position in all of these categories in anticipation of the upcoming summer season.
6.2.3. Budget FY09 Sales Initiatives - Update
Below is a table showing the current status of planned budget initiatives for FY09.
Initiative
Mat
Grp
Total
Total
Budget $
Sales to
Date $ Brand Status
1C Hose 50% 1C 282,000 - Nylex
1D Hose 50% 1D 282,000 - Nylex
CVT Merchandising 1D 200,000 - Nylex
1S - New colour 1S 150,000 - Nylex
Shade Cloth 1S 4,000,000 - Nylex
Rubbish Bin range 2B 500,000 - Nylex
Chiller - Bunnings, WW, Other 2L 600,000 - Nylex
Holden - Supercheap Autobarn 2L 400,000 - Nylex
Dual branded - Orica, VB,
Other 2L 60,000 - Nylex
Packaging change Big W,
Bunnings, Woolworths 2N 704,000 - Nylex
7,178,000 -
Gas Tools 6C 540,000 - Senco
Gas Cells 6C 390,000 - Senco
SN75/72/FIP35/FIP42XP 6C 500,000 - Senco
Targeted trade shows 6C 160,000 - Senco
Flooring stapler 6C 80,000 - Senco
Bunnings framer SN722 6C 378,000 - Senco
Collated Nails 6G 1,200,000 - Senco
3,248,000 -
Multi head screw 6D 50,000 - Ajax
Customer Conversion - Rivets 6D 50,000 - Ajax
Customer Conversion - Screws 6D 100,000 - Ajax
Customer Conversion - Bolts 6D 75,000 - Ajax
Rivet tools 6J 140,000 - Ajax
415,000 - Ajax
Water Diverta 8F 200,000 - Nylex
Other 8J 133,896 - Nylex
Omega Omega 2,865,000 - Nylex
3,198,896 -
14,039,89
6 -
7. Safety
There were no LTI’s in May.
8. Outlook
$'000
July
Estimate Budget
Net Sales 4,000 7,663
EBIT (694) 548
EBIT % (17.7%) 7.1%
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