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McPHERSON’S LIMITED

 ANNUAL REPORT 2015

EBIT (earnings before interest and 
tax), excluding the non-cash 
impairment of intangibles and 
non-recurring items, was $22.5 million, 
15.4% below FY2014 ($26.6 million*).  
Excluding non-recurring items and 
impairment of intangibles, profit 
before tax was $16.4 million, 18.2% 
below FY2014.  Non-recurring items 
before tax in FY2015 included $4.1 
million in restructuring costs, a $2.0 
million interest rate swap termination 
loss, a $2.0 million contingent 
consideration adjustment benefit, a 
$0.6 million impairment of intangible 
assets and $0.4 million in acquisition 
related costs.  Non-recurring items 
before tax in FY2014 included an 
$80.0 million non-cash impairment of 
intangible assets, restructuring costs 
of $1.5 million, and acquisition and 
transition costs of $1.1 million. 
Underlying profit after tax, excluding 
the non-cash impairment of 
intangibles and non-recurring items 
was $12.0 million, 16.1% below FY2014.

which are expected to lead to higher 
margins in FY2016.

The Company continues to operate a 
comprehensive foreign exchange 
hedging program, which mitigates the 
impact of Australian dollar and US 
dollar movements. Estimated US dollar 
requirements are hedged eight 
months forward on a rolling basis, 
using options, forward exchange 
contracts and collars. In FY2016 the 
company’s exposure to the US dollar 
is expected to continue to reduce as a 
result of the cessation of unprofitable 
private label supply contracts sourced 
in US dollars and the continued 
growth in Australian sourced Health 
and Beauty product.

Total expenses, excluding product 
costs, borrowing costs, restructure 
costs and non-cash impairment costs, 
decreased by $2.0 million or 1.7%, 
largely due to a reduction in cartage, 
freight and third party warehousing 
costs resulting from the change in 
product mix and the divestment of the 
Housewares business.  The percentage 
of expenses to sales ratio reduced 
from 34.6% of sales in FY2014 to 
34.4% of sales in FY2015.  

During the past year the company has 
transitioned its New Zealand IT 
operation to the primary ERP system 
used in Australia.  Additionally the 
logistics function in New Zealand was 
outsourced to a third party provider, 
removing a significant fixed cost 
element from the New Zealand 
operation, providing potential for 
future improvements in profitability.

Underlying earnings per share, 
excluding the non-cash impairment of 
intangibles and non-recurring items, 
declined 19.5% from 15.4 cents per share 
to 12.4 cents per share.

Inclusive of the aforementioned 
non-recurring items, McPherson’s 
reported a statutory profit after tax of 
$8.8 million, compared with a loss after 
tax of $67.0 million in FY2014.  

Operating cashflow before interest and 
tax was $19.5 million, $14.4 million below 
FY2014, and represents cash conversion 
of 89% of underlying EBITDA. Net 
working capital decreased by $3.2 
million, with the increase in inventories 
more than offset by a decrease in trade 
receivables and an increase in trade 
payables.

Net debt increased from $74.7 million at 
1 July 2014 to $77.2 million at 30 June 
2015.  The Company’s gearing ratio (net 
debt/total funds employed) was 43.9% 
compared with 44.6% at 30 June 2014.  
The net cash inflow of $7.4 million in 
FY2015 included payments totalling $8.1 
million for the acquisitions made during 
the year and proceeds from the 
divestment of business assets of $8.6 
million made during the year.

Directors declared a total dividend of 
8.0 cents per share fully franked for the 
full year.  This represented a payout ratio 
for the year ended 30 June 2015 of 65% 
of underlying earnings per share, 
excluding the non-cash impairment of 
intangibles and non-recurring items.

Earnings in FY2015 benefited from the 
acquisitions of the A’kin and Al’chemy 
brands, together with the distribution of 
Procter & Gamble’s fine fragrances and 
Trilogy. While gross margins declined 
during FY2015 primarily as a result of 
the depreciation in the Australian dollar, 
the Group has implemented price 
increases across all product ranges and 
negotiated cost decreases both of 

REVIEW OF OPERATIONS 

(CONTINUED)

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FY2014 figures have been restated to reflect a change with respect to the timing of recognising revenue and promotional discounts.  The impact has been to reduce 
sales revenue $0.7m, increase the loss before tax $0.7m, and increase the loss after tax $0.5m.