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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