Despite operating in a challenging and declining industry PMP’s credit profile continues to improve as the group executes its agenda of being net debt free
The following table summarises 1H16 results:
Source: PMP
Key points:
- Sales during 1H16 were $390.5m down 8.6% ($36.8m) per corresponding period (pcp) primarily due to a print customer buying their own paper ($24m). While PMP NZ had a 3.7% increase in distribution volumes and 3.3% higher catalogue tonnes as well as costs savings, this was more than offset by a 15.5% drop in sheetfed sales due to a contract loss. PMP Australia had a 6.4% rise in distribution volume while catalogue tonnes were 4.3% lower as the company exited low margin contracts
- Net profit after tax was $1.8m compared to $4.3m in 1H15 and was impacted by significant items including a $2.7m post tax bad debt impairment relating to Dick Smith, $2m of redundancy costs and $2.7m of financing break fees and write-offs. Excluding these items, net profit after tax increased 4.9% to $7.8m
- EBITDA (pre significant items) at $29.0m, down 7.7% pcp mainly due to lower PMP NZ profits
- Free cashflow increased 24.7% to $17.5m in 1H16 as better working capital outcomes and lower capex offset reduced EBITDA. However some of this was due to favourable timing which will reverse in the second half of the year
- Net debt reduced to its lowest level of $10.4m in 1H16 compared $40.0m in 1H15
- Net debt to EBITDA (pre significant items) has reduced to 0.2x from 0.7x pcp and interest cover has improved to 8.2x in 1H16 compared to 6.4x 1H15
- The company continues its shareholder friendly policy to distribute 100% of NPAT annually (pre significant items) with at least 75% via dividend and the remaining via share buyback. As such PMP has announced a further $1.9m will be repurchased out of the 1H16 NPAT to bring the total for the remainer of the year to $5.4m
Outlook
PMP state that trading conditions remain challenging with mixed signals in the Australian retail sector. However, industry demand for catalogues remains stable. PMP NZ is experiencing tougher than expected trading conditions with pricing pressure in heatset printing. Volume will likely be lost going forward due to Dick Smith and Masters. However PMP affirmed its full year guidance provided at the AGM:
- FY16 EBITDA (pre significant items) to be in the range $53-57m
- FY16 EBIT (pre significant items) to be in the range of $24-28m
- NPAT (pre significant items) $11-13m
- Full year net debt guidance range is $3-7m
- Full year free cash flow $33-37m
Conclusion
PMP’s credit profile continues to improve as the group executes its agenda of being net debt free. This is supported by its solid free cashflow of circa $30m plus per year. During 1H16 net debt to EBITDA (pre significant items) has reduced to its lowest level of just 0.2x (1H15: 0.7x) and interest coverage has improved to a strong 8.2x (1H15: 6.4x).