McPherson’s has provided an update guiding to a first half FY16 EBITDA figure of around $17m
McPherson’s (MCP) has provided an update on its operations. Key points:
- MCP expects an annualised profit benefit in excess of $10m due to price increases and product and operational costs savings
- It will benefit from lower resin prices which spiked in 2H15 as detailed below
- MCP expects these improvements to ‘materially’ offset the effect of AUD depreciation in FY16, which was not the case in FY15
- MCP estimates 1H16 results to be approximately in line with 1H15, suggesting an EBITDA figure of ~$17m
- If this level of profitability is maintained during 2H16 it will bring MCP back to ~$30m EBITDA per annum originally sought when the bond was issued
- MCP expects to divest its remaining 49% share of the Housewares business which if this occurs would bring in some $15-18m during March/April 2016
- The Household Consumables division, which drives the majority of USD exposure, remains for sale. The group has received offers, which were deemed too low
- Income from divestments is required to be used to reduce debt or reinvest in ‘productive’ assets. This potentially means some $15-18m from the joint venture sale may pay down debt in the second half of FY16 which would be credit positive
- If the Household Consumables division remains unsold, a continued fall of the AUD from around 70c to 65c would have an impact of some $4-5m on EBITDA however should be offset by declining resin/aluminium prices for a net effect of around $3m EBITDA. This would be manageable, however pricing would needto be renegotiated. The continued depreciation of the AUD remains a key risk for the business
- The company will give full year guidance at the 1H16 results announcement in February 2016
- MCP advises it remains within bank covenants
Estimated interest coverage is given below based on the 1H16 guidance given.
| $m | FY14 | FY15 | Estimated 1H16 |
| EBITDA | -$52.40 | $22.20 | $17.00 |
| Interest | $6.64 | $8.34 | $4.00 |
| EBITDA/Interest | -7.94x | 2.67x | 4.25x |
Based on these estimates, 1H16 EBITDA interest cover will improve while remaining below initial guidance of around 5.2x by FY16.
Conclusion
While no specific figures were given, on the information available MCP should post a solid 1H16. Market conditions outside of MCP’s control, namely a depreciating AUD and increased commodity prices remain the key risks. Typically, commodity prices (e.g. aluminium and resin) tend to move in the same direction as the AUD, thus offsetting a large portion of currency fluctuations. This however was not the case in 2H15 and therefore profitability was affected. However resin prices have fallen and should support profitability together with various negotiated price increases. The group’s credit profile will also be supported if MCP’s remaining interest in the joint venture is sold mid 2H16 and its debt is reduced.