6
McPHERSON’S LIMITED
ANNUAL REPORT 2015
It was a challenging year for
McPherson’s. The rapid decline in
the AUD/USD exchange rate,
combined with a delay in realising
the benefits from the company’s
substantial transformation
program, thwarted our
expectation of a strong second
half and a higher underlying
pre-tax profit for the year.
Nonetheless, all the issues within
our control that affected our
performance last year have been
addressed and, coupled with
selling price increases, profit is
confidently forecast to improve
this year.
FINANCIAL
PERFORMANCE
Underlying after-tax profit,
excluding non-recurring items,
was $12.0 million compared with
$14.3 million in FY2014,
and underlying earnings
per share were 12.4
cents compared with
15.4 cents in FY2014.
Statutory after-tax profit
was $8.8 million following a
statutory after-tax loss of $67.0
million in FY2014 when the value
of intangible assets was impaired
by $80.0 million.
Sales revenue was $349.1 million,
1% below FY2014, but underlying
sales revenue, excluding the
Housewares division which was
equity accounted from
November 2014 following the
sale of 51% of the business,
increased by 15%.
Shareholders received a fully
franked interim dividend of 6
cents per share and will receive a
final dividend of 2 cents per
share fully franked in November,
in line with the directors’ policy of
paying dividends of at least 60%
of underlying net profit.
Net debt at 30 June 2015 was
$77.2 million, compared with $74.7
million a year earlier, with the
increase due mainly to
acquisitions and capital
expenditure. The gearing ratio
(net debt / total funds employed)
was 43.9% compared with 44.6%
at 30 June 2014.
In March 2015, the company issued
two $30 million tranches of
unsecured corporate bonds with
tenures of four years (floating
interest) and six years (fixed
interest), providing funding
certainty over the medium term
and adding diversity to the
company’s capital base. The funds
raised were applied to extinguish
secured term debt. Additionally, a
new two year secured working
capital facility was established.
TRANSFORMATION TO
CREATE VALUE
While the delay in realising the
benefits from our transformation
strategy is disappointing, we
remain steadfastly confident it
will create significant value for
shareholders. Three and a half
years ago, McPherson’s
performance largely depended
on the grocery channel, where
margins were constrained, and its
printing business, which served a
declining market. Today, we are a
very different company; the
printing business was demerged
in February 2012 and the grocery
channel last year provided only
43% of total revenue, with this
percentage expected to be even
lower in the current year.
Importantly, the proportion of
our purchases in US dollars fell
from 85% in FY2014 to 63% last
year and will continue to decline.
Our strategy remains to transform
the company through growth in
our recently acquired brands and
new agency partnerships, further
divestments, the strengthening of
our iconic beauty brands through
increased investment, and
diversifying away from margin
constrained channels. Over the
past three or so years, despite
some very challenging headwinds,
we have acquired and successfully
integrated eight new businesses,
secured several profitable agency
brands, formed a joint venture
with a leading international group
to market and distribute our
housewares products, and
developed and launched new
product ranges. We have also
restructured many aspects of the
company to improve efficiency
and to create a more resilient
business and a strong platform
for earnings growth.
The factors that prevented our
benefiting from these changes
during the past year have been
addressed. Key customers were
reluctant to accept price
increases to compensate for the
lower AUD/USD exchange rate
and higher commodity prices,
but after protracted negotiations
increased prices have been
agreed and, where margins were
inadequate, contracts have been
exited. We have also negotiated
lower product costs with
suppliers and reduced expenses,
particularly in the supply chain.
In addition, certain one-off costs
that affected last year’s result will
benefit the company’s
performance in the current year.
These included extra promotional
expenditure to establish newly
acquired brands and the cost of
re-shaping the New Zealand
operation, including outsourcing
its logistics function and
transitioning the business to our
primary ERP system.
This ERP system will also be rolled
out during the current year to our
Hong Kong-based sourcing
operation and our Home
Appliances business, which will
deliver meaningful productivity
and efficiency gains. We will also
advance our digital capability so
consumers can access product
information more readily and
purchase selected brands online.
CREATING
VALUE
A challenging year didn’t stop us from
our transformational journey. We have
restructured many aspects of the company
to improve efficiency and to create a more
resilient business.
CHAIRMAN &
MANAGING DIRECTOR’S REPORT