McPherson’s has posted good results with solid cash generation and debt reduction
This supports the company’s position that is has ‘reset’ the business to the lower AUD environment and improved profitability by refocusing towards higher margin businesses and products. The most positive takeaway from the results is that net debt has reduced significantly from $77.2m at 30 June 2015 to $49.9m 30 June 2016.
We note the following:
- While sales revenue fell 10.5% over the year to $312.6m, EBITDA increased 13% to $30.5m given the exit of loss making contracts, low margin product lines, and focus on more profitable sectors such as health and beauty
- The impulse merchandising business line has been exited after the division became unprofitable in FY16 due to the fall in the AUD and reduced scale. A $1.4m closure cost will be incurred, however the line will no longer be a drag on results and will also free up ~$2m in working capital
- Net debt reduced from $77.2m at 30 June 2015 to $51.0m at 30 June 2016 driven by the $20m joint venture business sale as well as improved working capital. On an underlying basis MCP recorded 118% cash conversion with $24.9m operating cashflow compared to $6.9m in FY15
- The improved cashflow shows that the company has ‘reset’ the business to the lower AUD environment and improved profitability with higher margin businesses. The restructuring and actions taken in 2H15 and 1H16 therefore appear to have produced positive results
EBIT Bridge FY15 to FY16
Source: Company report
The chart illustrates how MCP offset the weakening AUD/USD impact over FY16. Looking forward, MCP will benefit from full year effects of the price increases and product repositioning as well as the now more favourable currency movements.
Divisional information
Source: Company report
CEO to retire from MCP
CEO Paul Maguire has announced his retirement from November. He is to be replaced with Laurie McAllister who appears to have significant relevant experience. This includes multiple senior roles at Coca-Cola and most recently as managing director of Sanofi’s business in Australia and New Zealand. Sanofi has sales of over $1.1bn, 1,000 employees and has divisions focused on consumer healthcare and pharmaceuticals
McPherson’s has fixed and floating bond lines. The 7.10% fixed rate March 2021 notes are offered at an indicative yield to maturity of 6.38%* while the BBSW+4.30% floating rate March 2019 notes are offered at an indicative yield to maturity of 6.14%* +452bps.
Please contact your FIIG representative for further information on the McPherson’s bonds. Available to wholesale and retail investors in minimum parcels of AUD10,000.
*Note: Prices accurate as of 23 August 2016 but subject to change.