McPherson’s appear to have generated strong cash flow particularly in the second half of FY16
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 $92.8m at 31 December 2015 to $49.9m 30 June 2016.
The company’s media release can be viewed here.
| Preliminary, unaudited results summary | FY2016 ($ million) | FY2015 ($ million) | Change (%) |
| Sales revenue | 312.6 | 349.1 | (10.5) |
| Underlying EBIT* | 25.8 | 22.5 | 14.4 |
| Underlying profit before tax* | 18.9 | 16.4 | 15.7 |
| Underlying profit after tax* | 13.5 | 12.0 | 12.7 |
| Statutory profit before tax | 14.7 | 11.2 | 30.5 |
| Statutory profit after tax | 11.0 | 8.8 | 25.0 |
| Net Debt | 49.9 | 77.2 | (35.3) |
| Underlying earnings per share (cents) | 13.6 | 12.4 | 9.7 |
| Statutory earnings per share (cents) | 11.2 | 9.2 | 21.7 |
*Underlying amounts exclude the following significant non recurring items before tax:
FY2016: $2.0m profit recognised from the divestment of Housewares; $4.3m inventory rationalisation & restructuring costs; $1.4m costs associated with exiting the Impulse Merchandising Division; $2.0m legal & acquisition costs; $0.3m bond buyback costs.
FY2015: $2.0m interest rate swap termination loss; $4.1m restructuring costs; $0.4m acquisition costs; $0.6m impairment of intangible assets; $2.0m contingent consideration adjustment benefit.
We note the following:
- While revenue fell 10.5% over the year to $312.6m, EBIT increased 14.4% to $25.8m given the exit of loss making contracts, low margin product lines, and focus on more profitable sectors such as health and beauty
- Further, 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 drag on result and also free up ~$2m in working capital
- Net debt has reduced from $92.8m at 31 Dec 2015 to $49.9m at 30 June 2016. Even with consideration of the $20m business sale, this is significant debt reduction and suggests strong cash flow – particularly in the second half – given cash flow from operations was negative in 1H16. While the results release is preliminary and limited in detail, this appears a good result for the company. The suggestion of significant cash flow in the second half supports the company’s position that is 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 be producing positive results. Again, it is noted this is a preliminary results release with limited detail
- A full overview of FY2016 divisional performance, together with details of the major growth initiatives in progress, will be provided with the full year results announcement due for release on Monday 22 August 2016
McPherson’s has fixed and floating bond lines. The 7.10% fixed rate March 2021 notes have an indicative yield to worst at maturity in March 2021 of 6.56%, while the BBSW+4.30% floating rate March 2019 notes have an indicative yield to worst at maturity in March 2019 of 6.34%.
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.