No wonder the announcement by McPherson’s Ltd (MCP) of its 2013-14 interim profit was delayed a week to yesterday.
The near $80 million of write downs and bottom line loss of $70 million wasn’t one of the most convincing of efforts, even though the company had tipped the market to expect a weak result in an update on January 28.
The end result of the impairment losses, which was alluded to on January 28, but not quantified until yesterday’s announcement, means McPherson’s is heading for its second annual loss in a row – impairments of $48 million in 2012-13 took the loss for the year to $32 million.
So the total bill for impairments so far in the two years looks like being nearly $128 million.The company continues to excuse these losses as being "non-cash impairments".
The impairments in the December 31 half year amounted to $79.5 million after-tax of intangible assets (comprising $1.2 million of brands and $78.3 million of goodwill).
In other words, the company paid too much for one of its recent acquisitions and has been forced to write off some of the excess (the goodwill).
The flood of red ink in the latest half year obscured what was another ordinary performance from the company – that was reflected in the 40% chop to interim dividend to 6c a share from 10c a share.
The company, which owns Manicare and Lady Jayne personal care products and Wiltshire and Stanley Rogers range homewares, said underlying net profit slipped from $10.4 million to $10.2 million, in line with the company’s January guidance and slightly ahead of market forecasts around $9.9 million.
Underlying earnings before interest and tax fell 2.3% to $17.5 million, in line with the January forecasts.
But seeing revenue rose 17% in the half year (including acquisitions) to just over $180 million for the six months, it’s clear none of the revenue gains stuck to the profit line and were fritted away.
MCP 1Y – McPherson’s bound for another loss-making year
Managing director Paul Maguire said trading conditions were expected to remain challenging in the June half and full year underlying EBIT and net profit were expected to be flat, while earnings per share were expected to fall 15% due to recent share issues to fund acquisitions.
Mr Maguire said he expects the health and beauty and home appliance businesses to perform strongly and said the group was pursuing initiatives to boost profits in the housewares and household consumables businesses, which are facing cost increases and increasing competition.
The CEO said in yesterday’s statement that the company was selling its Crown glassware business, "marking McPherson’s exit from the lower margin foodservice channel in Australia. This is in line with our commitment to diversify away from less profitable channels and focus on growth initiatives in more profitable channels, particularly those serviced by our health & beauty and home appliance businesses."
Net debt at 31 December 2013 was $91.7 million compared with $69.6 million at 30 June 2013, with the increase primarily due to acquisitions in the half. That’s a rise of more than 30% in net debt.
"The gearing ratio (net debt to total funds employed) was 48.3% (inclusive of the $79.5 million after-tax impairment of intangible assets) compared with 29.2% at 30 June 2013. Strong support from the company’s lenders has been maintained, with the Gearing Ratio covenant being increased from 40% to 55%," the company said yesterday.
Despite the bad news and losses, the company’s shares ended unchanged on $1.20.
