PMP has recorded weak results for 1H17, attributed to intense competition as well as customers delaying signing contracts until the IPMG merger is complete
PMP has recorded weak results attributed to intense competition as well as customers delaying signing contracts until the IPMG merger is complete. PMP guides to FY17 EBITDA of $36-41m which is below our forecast of $47m. PMP has revised up cash costs for this transaction, however this is offset by increased estimated synergies. The acquisition is likely increase leverage initially but we view it to be long term credit positive as synergy benefits come through and excess capacity is taken out of the merged entity. The acquisition is due to complete on 1 March 2017.
Results summary
| $m | 1H17 | 1H16 | Change |
| Sales | 496.6 | 390.5 | 27.2% |
| EBITDA | 11.1 | 29 | -61.7% |
| D&A | 12.9 | 14.3 | -9.8% |
| EBIT | -1.8 | 14.8 | -112.2% |
| Interest | 2.3 | 3.4 | -32.4% |
| Significant items | 11.6 | 6 | 93.3% |
| NPAT | -14.5 | 1.8 | -905.6% |
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| Cashflow from operations | -2.2 | 15 | -114.7% |
| Free cashflow | 5.7 | 17.5 | -67.4% |
| Net debt | 9.8 | 10.4 | -5.8% |
| EBITDA interest cover | 4.9x | 8.2x | -3.3% |
| Net debt/EBITDA | 0.3x | 0.2x | 0.1x |
Source: FIIG Securities, Company reports
Key points:
- As noted at the AGM last year, trading in the second half of fiscal 2016 was adversely affected by hesitant customer activity leading to industry consolidation. PMP stated that every major heatset print company is pursuing industry consolidation and exhibiting aggressive competition to retain existing contracts. This led to a 24% decrease in sales at PMP Australia to $28m, with volumes down 16%
- Overall, first half sales increased 27.2% to $496.6m mainly due to the new Bauer contract at Gordon and Gotch
- EBITDA reduced 61.7% to $11.1m mainly due to PMP Australia on lower print revenues
- Free cashflow of $5.7m was down 67.4%
- Significant items in 1H17 were $11.6m – including $6.7m of redundancy and restructuring costs – and $2.3m of costs relating to the IPMG merger
Debt
Net debt at December 2016 was $9.8m, $0.6m lower compared to December 2015 and $10.5m higher compared to June 2016. Net debt to EBITDA – pre significant items – increased from 0.2x to 0.9x times and interest cover decreased to 4.9x from 8.2x at December 2015.
Since balance date, PMP has extended its standalone debt facilities with ANZ to December 2017.
Capital management
PMP will suspend both dividends and share buybacks during the IPMG implementation period – given the cash demands of delivering synergies – as advised in October 2016. PMP will continue to progressively review capital management policies, but does not expect to recommence dividends or share buybacks before 2018 subject to trading conditions.
Merger
The acquisition of IPMG Pty Ltd is due to complete on 1 March 2017. Annualised savings from transformation are now expected to be circa $55m – $15m up on original expectations. Expected cash costs have increased to $80m, compared the original of $65m.
Outlook
On a merged group basis, EBITDA guidance (pre significant items) for FY17 is in the range of $36m to $41m.
Annualised full year EBITDA (pre-significant items) is expected to be $90m to $100m from fiscal 2019, subject to market conditions.
Full details can be found here.