McPherson’s has sold its remaining share in its Houseware joint venture and applied the proceeds to reduce debt
McPherson’s (MCP) has provided details of its capital management initiatives previously highlighted in its February 1H16 results announcement. MCP has sold its 49% investment in its Housewares joint venture with Fackelmann. While the division has yielded an improved EBIT outcome, the company decided to execute its option to divest its remaining interest, which is consistent with its strategy to focus on the health and beauty sector. MCP has received $21.3m from the sale which completed on 31 March 2016 and has used the funds to reduce debt. The total profit before tax generated from the divestment will be approximately $2.0m.
MCP has bought back a total of $10m of its outstanding fixed and floating bond lines, and applied the remaining proceeds of $11.2m (net of costs) to reduce the Group’s secured working capital loans from Westpac Banking Corporation and National Australia Bank.
As a result, MCP’s credit metric will improve with Gearing (net debt / total funds employed) projected to be in the range of 36% to 39% at 30 June 2016 (compared to 43% at 31 December 2015), and the leverage ratio (net debt / underlying EBITDA) is projected to be in the range of 2.2 to 2.6 times (3.4 times 31 December 2015).
MCP is not cancelling the bonds it has bought back, and therefore can resell them into the market at a later stage effectively redrawing on the debt. The reduction in the overdraft facility can also obviously be redrawn. So while this will give the group access to liquidity if required, MCP’s credit metrics could deteriorate back to prior levels, if any drawing is not accompanied by improved profitability/cash generation.