McPherson’s has posted a good result for 1H16 and confirmed the sale of the Housewares JV which will reduce debt by an estimated $20m and improve the group’s credit profile. However, the company has stated that it is no longer in negotiation to sell the Household Consumables/Multix division which would have materially reduced currency risks
| $m | 1H16 | 1H15 |
| Income statement |
|
Sales revenue
|
168.30
|
184.70
|
|
Interest
|
3.71
|
3.29
|
|
EBITDA (excluding non-recurring)
|
17.30
|
16.80
|
|
Total expenses
|
154.77
|
172.35
|
|
NPAT
|
10.09
|
9.31
|
|
Cash flow from operations
|
-5.13
|
12.91
|
| Balance sheet |
|
Cash
|
16.65
|
11.28
|
|
Total assets
|
297.24
|
282.94
|
|
Debt
|
109.46
|
88.48
|
|
Net debt
|
92.81
|
77.19
|
|
Total liabilities
|
189.94
|
184.20
|
|
Total equity
|
107.30
|
98.74
|
| Credit ratios |
|
EBITDA margin
|
10.3%
|
9.1%
|
|
Cost/Income
|
92.0%
|
93.3%
|
|
EBITDA/interest
|
4.7x
|
5.1x
|
|
Debt/total capital
|
50.3%
|
47.3%
|
Source: Company reports Key points:
- Sales revenue decreased by 8.9% to $168.3m in 1H16, but increased by 6.2% if the Housewares division is excluded - of which 51% was divested in November 2014
- Profitability improved with EBITDA up 2.9% to $17.3m, on lower revenue, primarily given the exit in June 2015 of unprofitable private label products
- Efficiency improved marginally with the costs to income ratio improving to 92% (1H15: 93.3%) and the EBITDA margin increasing to 10.3% (1H15: 9.1%)
- EBITDA interest coverage has weakened to 4.7x (1H15: 5.1x) and total debt as a proportion of total capital increased to 50.3% from 47.3%
- Positively, McPherson’s announced the divestment of the remaining 49% share of McPherson’s Housewares joint venture effective 31 March 2016 and the intention to use proceeds to reduce debt by an estimated $20m.On a pro forma basis based on 1H16, debt to total capital will reduce from 50.3% to 31.3%
- McPherson’s has stated that it is no longer in negotiations to sell the Household Consumables division (Multix) -which drives the majority of USD exposure and therefore risk. A sale of this division would have significantly de-risked the business
- As an estimate, if the AUD continues to fall from around 70c to 65c this would have a negative impact of some $4-5m on EBITDA. But the decline should be offset by lower resin/aluminium prices for a net effect of around $3m EBITDA. This would be manageable, however pricing would need to be renegotiated. The continued depreciation of the AUD remains a key risk for the business
- No full year guidance was given however 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 noting the second half is typically seasonally weaker
Divisional performance
Source: Company report
- The key Health & Beauty division increased sales by 11% and contributed 48% of group revenue, compared with 45% in 1H15. The pharmacy channel contributed 29% of group revenue, up from 23% in 1H15
- Home Appliances recorded 18% revenue growth and contributed 23% of group revenue. While margins were adversely impacted by the AUD/USD depreciation, cost reductions and volume growth is expected to deliver improved profitability in FY16
- The Household Consumables division (Multix) recorded growth in sales of branded products, while private label products declined as unprofitable contracts were exited. Profitability continued to be impacted by the weakening AUD
Conclusion
McPherson’s has posted a good result and confirmed the sale of the Housewares JV which will reduce debt and improve the group’s credit profile. Market conditions outside of McPherson’s control, namely a depreciating AUD and fluctuations to commodity prices remain the key risks to the business. This risk is now heightened given the company has stated it is no longer in negotiations to sell the Household Consumables/Multix division.
McPherson’s has fixed and floating bond lines available both offered at a discount to par. The fixed rate notes have a maturity in March 2021 and an indicative yield of 7.93% while the floating rate notes have a maturity in March 2019 and an indicative yield of 7.58%.
Please note pricing is indicative only, accurate as at 23 February 2016 and subject to change.