McPherson’s Ltd
Executive summary
o McPherson’s Ltd (MCP) is a leading supplier of health and beauty,
consumer durable and household consumable products in Australasia.
Formed in 1860 the group has approximately 800 staff, is ASX listed
and has a market capitalisation of ~$120m
o MCP’s competitive advantage is supply chain management and the
marketing of complex and comprehensive ranges of products to an
extensive customer base of some 10,000 retail outlets
o The company owns a diversified portfolio of well known brands
including Manicare, Lady Jayne, Dr LeWinn’s, Swisspers, Euromaid,
Baumatic and Multix and manages bands as an agent for
Procter&Gamble (Hugo Boss, Dolce & Gabbana and Gucci fragrances)
and Trilogy
o While incurring statutory losses over the last two years as a result of
non-cash writedowns the underlying business remained profitable
cash generative
o As a result of the losses, MCP implemented a transformation program
which is near completion; selling down less profitable businesses,
acquiring stronger higher margin brands and reducing exposure to the
competitive grocery channel. Returning to profitability 1H15 MCP is
expecting underlying profit before tax of ~$20m FY15
$m
FY12 FY13 FY14 FY15f
Revenue (LHS)
277.0 303.1 354.1 361.0
EBITDA (RHS)
35.1
31.2
29.1
32.2
NPAT (RHS)
16.5 -26.4 -70.7
15.3
Net Debt
76.7
69.6
74.7
58.9
Net Debt/EBITDA
2.2
2.2
2.6
1.8
EBITDA/Int.
5.9
4.7
4.4
4.3
EBIT/Int.
5.4
4.3
3.9
3.9
Operating CF
16.3
14.8
23.2
19.7
Debt/Tot Capital
30.7
29.5
45.3
43.9
Market Capital
115.8 112.5 104.5
n/a
f=Bloomberg consensus forecast
Operating performance ($m)
400
60
350
40
300
20
250
0
200
-20
150
-40
100
-60
50
0
-80
FY12
FY13
EBITDA (RHS)
7
FY14
NPAT (RHS)
FY15f
Revenue (LHS)
Credit metrics (x)
6
5
o MCP has a strong management team and board, with extensive
industry experience and have done a solid job in transforming the
business
4
3
2
o MCP may still face issues similar to those which have previously
1
affected the business given the nature of the industry, however is now
0
FY12
FY13
FY14
FY15f
less exposed. Risks include exposure to the grocery sector (which has
Net Debt/EBITDA
EBITDA/Int.
strong market power), the loss of a major client, ‘de-ranging’ of
product and/or increased private label competition. The group also has exposure to a falling AUD however
employs hedging strategies and has an ability to pass on some costs through higher prices
o MCP has relatively high levels of gearing however this is manageable and interest cover remains solid. Net
debt/EBITDA peaked at 2.6x FY14 and is forecast to fall and interest cover was 4.4x for FY14 and forecast to
continue to improve
o MCP is seeking to raise $60m in unsecured notes (the Notes) to refinance existing debt. The Notes are offered in
two Series:


Series A $30m: offers a floating rate of 90 day BBSW+430bps p.a. (paid quarterly) for four years, callable at
the company’s option after two years at $103 or after three years at $101.50
Series B $30m: offers a fixed rate of 7.10 % p.a. (paid semi-annually) for six years callable at the company’s
option after three years at $103, after four years at $102 or after five years at $101
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be
reproduced, distributed or provided to a third party without FIIG’s prior written permission other than to the recipient’s
accountants, tax advisors and lawyers for the purpose of the recipient obtaining advice prior to making any investment
decision. FIIG asserts all of its intellectual property rights in relation to this document and reserves its rights to prosecute
for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 1 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
Background
McPherson’s Limited (MCP) is a leading supplier of health and beauty, consumer durable and household consumable
products in Australasia, with operations primarily in Australia, New Zealand, Singapore and Hong Kong and through
agents in North America and South Africa. It was formed in 1860 and became focused on consumer products after
demerging printing in early 2012. The group is ASX listed and has a market capitalisation of ~$120m with
approximately 800 staff.
MCP’s competitive advantage is supply chain management and the marketing of complex and comprehensive ranges
of products that consumers frequently use. MCP has an extensive customer base, servicing ~10,000 retail outlets
including supermarkets, discount department stores, pharmacies and independent housewares stores. MCP also
offers private label brands to retailers.
MCP sources the majority of its product from China and has a sourcing team based in Hong Kong. The company has
distribution centres at Kingsgrove in Sydney and Singapore, and third party distribution centres in Melbourne and
Auckland. Home Appliances are typically sourced from China and Turkey and third party warehousing is adopted
with a significant proportion delivered direct to MCP’s customers.
As detailed in Figure 1, MCP’s business is split across the five major divisions. In 1H15 79% of sales were in Australia,
11% from New Zealand and the balance from various other countries (Figure 2). Please see Appendix 3 for a full
corporate structure diagram.
Figure 1: FY14 Segment EBIT composition
Figure 2: Divisional revenue composition
4%
10%
Health &
beauty
14%
39%
18%
Household
consumables
Australia
11%
Home
appliances
New Zealand
Housewares
Other
Impulse
merchandise
79%
25%
Source: FIIG Securities, Company reports
Figure 3 gives a summary of each division highlighting revenue contribution, growth when compared the previous
year (with and without the impact of acquisitions) and the outlook for the businesses. A full discussion of the
divisions is given below the table.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 2 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
Figure 3: Divisional revenue summary and outlook
Revenue
% FY14
Revenue growth
FY14 v FY13
13% overall/ 2.5%
excluding acquisitions
Reasons
Outlook
New products &
acquisitions
Competitive grocery
channel
Growth in revenue and
profit
Health and beauty
31%
Household consumables
25%
0%
Housewares
22%
-8%
Crown Glassware sale
Home appliances
17%
523% overall/ 16%
excluding acquisitions
Full year effect of
acquisitions
Impulse merch/other
5%
-18%
Distribution changes
Stable
Lower sales but improved
profitability
Growth in revenue and
profit
Growth through new
ranging
Source: FIIG Securities, Company reports
Health & Beauty (31% FY14 sales) – a key growth area: Markets & distributes a range of beauty care, hair
care, skin care and fragrance product ranges. Key agency and owned brands include Manicare, Lady Jayne,
Moosehead, Swisspers, Disney, Glam by Manicare, Eylure, Rufus & Coco, Footcare, Elegegant Touch, DaVinci,
Revitanail and Dr. Lewinn’s. New products and new agency partnerships (P&G, Trilogy) have boosted MCP’s sales
into Pharmacies and Department Stores. Outlook: At the 1H15 result, MCP expected growth in revenue and profit
primarily due to new agencies and recent acquisitions. The underlying performance (excluding acquisitions) at 1H15
had been flat.
Household consumables (25% FY14 sales) – likely to be divested: MCP markets and distributes kitchen
essentials such as plastic bags, baking paper, cling wrap and aluminium foil. The key brand in this division is Multix,
which is a market leader in the bags, wraps and foils category. Outlook: At the FY14 AGM, MCP indicated it expects
Multix to maintain its strong market position, but tough trading conditions are anticipated to continue due largely to
the competitive nature of the grocery sector. To reduce exposure to the low margin grocery sector and USD imports,
MCP is seeking to sell Multix and expects this transaction to occur in the next 12 months.
Housewares (22% FY14 sales) – German partnership: Markets and distributes products such as cutlery,
knives, bakeware and kitchen accessories under brands such as Wiltshire, Stanley Rogers, Furi and Luigi
Bormioli. On 31 October 2014, MCP transferred its Australian, Singaporean and Hong Kong business into a new
venture and then sold 51% to the German-based Fackelmann Group (Fackelmann). Under the agreement the
implied value of the 51% stake was $7.9m. The venture will market and distribute MCP and Fackelmann’s products.
MCP has a put option to sell its 49% share and Fackelmann also has a call option over MCP’s share. Both options are
exercisable from 1 January 2016 subject to the achievement of minimum performance hurdles. Outlook: At the FY14
AGM, MCP stated it expects lower sales but improved profitability due to the new Fackelmann partnership.
Home appliances (17% FY14 sales): Markets & distributes large appliances such as ovens, cooktops, washing
machines and dishwashers. MCP is now Australia’s third largest supplier in the cooking category and second largest
of freestanding cookers. Key home appliances brands include Euromaid, IAG, Elica, ARC and Fagor. The acquisitions
of Think in November 2013 (brands Baumatic, Venini & D’Amani) and Lemair in March 2014, has diversified MCP into
hardware and commercial channels. The home appliances division is favourable given it is not exposed to the
Australian grocery channel, which continues to consolidate at the expense of the independent operators. Outlook: At
the 1H15 result, MCP intended to grow revenue and profit largely via new products and acquisitions. 1H15
underlying revenue (excluding acquisitions) was up 8.6%.
Impulse merchandising (5% FY14 sales): Supply of the Home Living range of clip strip products (kitchen,
cleaning, storage, novelties) sold to leading retailers Woolworths, Target and K-Mart. Product is sourced from China
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 3 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
and delivered to store. Outlook: MCP expects this business to return to growth in FY15 due to a new agreement with
a retailer.
Key brands and products
Figure 4: Key brands and products (both owned and agency brands)
Source: FIIG Securities, Company reports
MCP is a diversified consumer business with a large portfolio of leading market brands (Figure 4).
Clients and customers
MCP has an extensive customer base of some 10,000 retail outlets including the major grocery and department
stores. Figure 5 illustrates the breakdown of the group’s main clients by sales as per the debtor book at January
2015. The top ten debtors represented 73% of the book.
Figure 5: Top debtors (January 2015)
Customer 1
22%
All other (less
than 1%
each)
27%
1%
1.5%
2%
Customer 5
2%
Customer 6 5%
4%
Customer 2
17%
Customer 4 Customer 3
5%
14%
Source: FIIG Securities, Company reports
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
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McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
The names of the clients and any contractual supplier arrangement are commercial in confidence, are not made
available to the ASX and cannot be disclosed. Almost half of clients represent less than 6% of revenue each, with
~27% generating less than 1% based on the debtor book at this time. However MCP largest two clients generated
$148m of revenue in Australia FY14 or 42% of total revenue FY14. These two clients are in the low margin grocery
channel where buyers have significant market power. MCP is reducing its exposure to this sector, as discussed below.
Strategy and business transformation
Over the past several years, MCP has faced a number of structural pressures including consolidation of the Australian
grocery channel, growth of private label and brand rationalisation. These challenges have placed pressure on MCP’s
earnings and margins. MCP has been active in addressing these structural pressures and in response has
implemented a number of strategies:
1.
Diversifying channels to market: MCP has reduced its exposure to the grocery channel in favour of channels
that offer greater profit potential, such as pharmacy, electrical retail and commercial building. Figure 6 and
Figure 7 depict MCP’s channel mix in FY13 (actual) and FY15 (forecast) respectively.
Figure 6: Channel mix FY13
7%
1%
2%
Figure 7: Channel mix FY15 forecast
Grocery
7%
5%
4%
2%
Grocery
Pharmacy
Pharmacy
Discount
store
Independent
10%
55%
Department
14%
45%
Department
7%
Hardware
Hardware
18%
Discount
store
Independent
Commercial
Commercial
23%
Source: FIIG Securities, Company reports
2.
3.
4.
Acquisitions: MCP has made a number of acquisitions recently, with a focus on the Health & Beauty and Home
Appliances segments. Examples of recent major acquisitions include Dr. LeWinn’s, Revitanail and Think
Appliances. The acquisitions have enabled MCP to move towards higher margin products and leverage the
excess capacity in the company’s distribution centre infrastructure.
New agency agreements: In August 2014, MCP was appointed as the Australian distributor for Proctor &
Gamble’s fine fragrance brands including Gucci, Dolce & Gabbana and Hugo Boss, as well as being appointed for
the exclusive Australian distributor of Trilogy natural skincare products. These agency agreements also enable
MCP to strengthen its offering when dealing with retail customers.
Divestments: MCP sold its Crown Glassware business in March 2014, expects to sell its Multix brand within the
next 12 months. In November 2014, MCP transferred its underperforming housewares business (22% of FY14
sales) into a new entity with the German based Fackelmann Group acquiring 51% of the vehicle. The remaining
share can be sold after January 2016.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 5 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
Figure 8: Business transformation timeline
Source: FIIG Securities, Company reports
Figure 8 gives a summary of the major transformation events. Over the past two years MCP has:
o integrated eight earnings accretive acquisitions in more profitable channels;
o established agency partnerships with two prestige beauty businesses;
o divested Crown Glassware, exiting the low margin foodservice channel;
o established a Housewares partnership with Fackelmann (Germany);
o launched new product ranges; and
o upgraded IT systems, boosted distribution centre efficiency and capacity, rationalised product ranges and
implemented price increases.
Opportunities to divest the group’s household consumables business are being pursued and consequently the assets
and liabilities of this business, together with the New Zealand housewares business, are classified as held for sale in
the MCP’s statement of financial position.
Management team
o Paul Maguire, Managing Director. Mr Maguire was appointed Managing Director in November 2009. He was
previously CEO of Multix from 2002, which was the combination of MCP’s two consumer products businesses
(McPherson’s Consumer Products and Multix). Prior to Multix he held a number of management roles within SCA
Hygiene.
o Paul Witheridge, CFO and Joint Company Secretary. Mr Witheridge was appointed CFO in November 2011.
In May 2010 he was also appointed as CFO of McPherson’s Consumer Products. Prior to this he held a number of
management roles at a range of listed retailers.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 6 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
o Philip Bennett, Joint Company Secretary. Mr Bennett was appointed to Company Secretary in February
2012. Prior to this he was CFO of MCP since 2000.
o Sammy Chan, Managing Director McPherson’s Hong Kong. Mr Chan has been with MCP for more than 20
years.
o Paul Mitchell, General Manger McPherson’s Consumer Products New Zealand. Mr Mitchell has been with
MCP for more than 14 years.
o Chris Muir, Global Supply Chain Director. Mr Muir was appointed Global Supply Chain Director in July 2012.
Prior to MCP, Mr Muir worked for a range of companies including Gloria Jeans, Wattyl, Goodman Fielder, CocaCola Amatil and Unilever.
Please refer to Appendix 1 for more details on the directors.
Industry
Health & Beauty: The Health & Beauty product range of MCP includes everything from hair & beauty essentials
distributed to pharmacies up to the high end brands of Gucci and Dolce & Gabbana distributed to David Jones and
Myer. The essentials products which include brands such as Swisspers, Maseur and Manicare are much less cyclical
and impacted by external economic drivers than the high end brands. The new agency agreement with Proctor &
Gamble will help yield stronger margins, while recent acquisitions of Dr Lewinn’s and Revitanail are expected to yield
stronger revenue in the pharmacy space.
Home Appliances & Housewares: Both businesses are generally impacted by:
o Consumer sentiment: Which is currently mildly cautious given unemployment, uncertainty and the broader global
market conditions however the continued central bank easing of monetary policy may provide support
o New homes/renovations: New dwelling approvals in December 2014 were up 8.8% (seasonally adjusted) on prior
year. Continued low interest rates are providing favourable conditions and are likely to continue to have positive
impacts on new dwelling and therefore home appliance sales
o Household disposable income: Continued heightened unemployment and low inflation will keep downward
pressure on household disposable income in the short to medium term
o Exchange rates: Foreign exchange risk is a key concern for MCP as the AUD continues to fall against the USD.
This will impact margins unless MCP is able to pass increased costs on to retailers given the majority of product is
imported
Household Consumables: The household consumables business includes staples such as garbage bags, freezer
bags, cling wraps etc. These products are non-cyclical with very little external factors impacting demand. This
division is subject to the growing prevalence of “home brand” ranges which continue to be a growth area for
retailers at the expense suppliers as well as the market power of large grocers
Impulse Buying: Impulse buying accounts for only 5% of revenue in FY14 and is correlated to consumer
sentiment.
Please refer to Appendix 2 for a competitor analysis and discussion.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 7 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
Debt structure
Figure 9: Current and proposed financing facilities
Facility
Core debt
Financier
ANZ/CBA/NAB
Current limit
$65m
Proposed limit
$0
Acquisition
Working capital
ANZ/CBA/NAB
ANZ/CBA/NAB
$15m
$27m
$0
$0
Seasonal working capital
New: Working capital
ANZ/CBA/NAB
WBC/NAB
$8m
-
$0
$60m
WBC/NAB
WBC/NAB
-
$10m
$8m
FIIG Securities
$115m
$60m
$138m
New: Seasonal working capital
New: Guarantees/Swaps (contingent)
New: FIIG bond
Total
Source: FIIG Securities, MCP
MCP’s currently has secured syndicated banking facilities totalling $115m with ANZ, CBA and NAB (Figure 9). The
working capital facilities fluctuate with business demand. At 1H15 net debt was $68.9m. The current facilities
comprise:
o An amortising core debt facility of $65m (originally $81m, maturing January 2016);
o An acquisition facility of $15m (maturing January 2016); and
o A working capital facility of $27m (one year term subject to annual review); and an additional seasonal working
capital facility of $8m (one year term subject to annual review).
The net proceeds of the FIIG notes will be used to reduce the core debt facility. Additionally the group is also
completing the process of refinancing its banking facilities with the objective of replacing them with a $60m working
capital facility and a $10m seasonal working capital facility (with two year terms, subject to annual review) and
contingent liabilities facility limit of $8m (Guarantees/Swaps). In addition the company requires its banks to provide
intraday transactional banking lines with a limit set at $20m under the permitted secured indebtedness terms of the
Notes issue. This intraday limit covers electronic payaway facilities, commercial and credit card facilities,
encashment facilities and merchant services facilities for all the companies Australian and overseas accounts. Full
details of these facilities are outlined in the Investment Memorandum.
The new bank funding facilities are not yet in place however it is expected agreements will be signed within the next
month. Regardless, the FIIG issue will payout ANZ and CBA with the remaining facility not maturing until January
2016.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 8 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
Financial analysis
Figure 10: Profit and loss
FYE 30 Jun ($m)
Total Revenue
Cost of Sales
Gross Profit
FY11
290.6
146.5
144.0
Actual
FY12
FY13
277.0
303.1
146.5
163.8
130.5
139.3
FY14
354.1
205.7
148.4
6 months
1H15
188.8
109.0
79.8
FY15*
361.0
194.4
166.5
Forecast
FY16*
356.0
191.8
164.2
FY17*
366.9
197.6
169.2
Gross Margin
49.6%
47.1%
46.0%
41.9%
42.3%
46.1%
46.1%
46.1%
45.0
13.6
11.8
7.0
19.7
46.9
44.6
14.4
13.1
6.7
16.6
35.1
45.6
24.4
15.0
6.8
16.2
31.2
48.7
28.6
17.9
7.0
17.1
29.1
25.0
13.4
10.2
3.3
8.5
19.3
16.1%
12.7%
10.3%
8.2%
10.2%
2.6
44.4
7.1
37.3
8.5
10.9
17.8
2.7
32.4
6.0
26.4
2.3
7.6
16.5
2.7
28.5
6.6
21.9
44.7
3.6
(26.4)
2.9
26.2
6.6
19.5
85.6
4.6
(70.7)
1.4
17.9
3.3
14.7
1.4
3.3
9.9
0.0
0.0
0.0
0.0
0.0
32.2
8.9%
2.9
29.3
7.5
21.8
6.6
15.3
0.0
0.0
0.0
0.0
0.0
32.9
9.2%
2.8
30.1
6.9
23.2
7.0
16.2
0.0
0.0
0.0
0.0
0.0
37.3
10.2%
2.7
34.6
6.9
27.7
8.3
19.4
1.2x
1.2x
6.6x
6.2x
2.2x
2.2x
5.9x
5.4x
2.3x
2.2x
4.7x
4.3x
2.7x
2.6x
4.4x
3.9x
n/a
n/a
n/a
n/a
2.5x
1.8x
4.3x
3.9x
2.4x
1.7x
4.7x
4.4x
2.1x
1.6x
5.4x
5.0x
Employee Costs
Logistics
Marketing Costs
Rental & operating lease
Other expenses
EBITDA
Margin (%)
Depn & Amort
EBIT
Interest
NPBT
Less non-op & signif. items
Tax
NPAT
Credit Stats
Total Debt / EBITDA
Net Debt / EBITDA
EBITDA / Interest
EBIT / Interest
*Bloomberg consensus forecast adjusted for new bond and working capital facility
As detailed in Figure 10, revenue increased 17% in FY14 to $354m, mainly due to acquisitions and new distribution
agreements made during the year with comparable sales in line with the prior year. EBIT was $26.2m in FY14,
8.1% below the prior year, with a slower first half (2.3% lower) offset by stronger earnings in the second (21.3%
rise) which benefited from a full 6 month contribution from the Dr Lewinn’s and Think Appliances acquisitions.
While 1H15 revenue improved 3.3% to $188.8m (compared 1H14), underlying EBIT (excluding non-recurring items)
of $16.3m was down 10.2% and underlying NPAT decreased 12.7% to $9.3m. First half earnings were affected by
two significant factors: lower than expected sales in November, and the rapid decline in the Australian dollar against
the US dollar which, despite the benefit of hedging, materially increased the cost of goods. Higher product costs
due to the adverse exchange rate, increased resin prices (used in the manufacture of products) and higher Chinese
manufacturing costs were unable to be offset fully by selling price increases during the period.
Net debt/EBITDA peaked at 2.6x FY14 and is forecast to fall to 1.6x by FY17 using Bloomberg consensus forecasts
and adjusting for the new finance structure. The group has a net debt to EBITDA target of around 2x. EBITDA
interest cover is solid at 4.4x FY14 and is forecast to continue to improve. Forecast interest expense is based on the
costs of the FIIG Notes and an estimated average working capital facility utilisation of 75%.
Over the last four years, the group has been impacted by various one off expenses and impairments (discussed
below) driving net losses of $26.4m in FY13 and $70.7m in FY14. The majority of these costs however were non
cash writedowns and therefore (importantly for debt holders) did not impact the business’s cash generation. MCP
has maintained good positive cash from operations through this period. For the half year to December 2014, the
group returned to profit posting a revenue increase of 3.6% to $188.8m and a profit of $9.9m (compared to a loss
of $70.1m the corresponding half year). Figure 11 summarises the various one off expenses and impairments which
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 9 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
have impacted MCP over previous years (noting that the non-operating and significant items in Figure 10 also
contain items relating to foreign exchange movements).
Figure 11: Significant items
$m
Restructure costs
Loss from discontinued operations
Impairments (goodwill and brand
names)
One off expenses
FY11
(0.5)
(6.3)
FY12
(0.4)
(1.4)
(6.8)
(1.7)
FY13
(1.6)
FY14
(1.5)
(50.0)
(51.6)
(80.0)
(81.5)
Source: FIIG Securities, Company reports
Costs relating to restructuring activities were nominal and generally related to redundancies and inventory clearance
costs associated with business closures. The losses from discontinued operations relate to the printing business
which was sold in January 2012.
In FY13 MCP realised $50m in impairment charges (non-cash) against its Australian Housewares & Household
Consumables business ($45m in goodwill and $5m in brand names) due to the reduced earnings caused by lower
margins and higher operational costs. Margins suffered as major retailers put pressure on MCP to provide additional
promotional support to protect market positions and manufacturing costs in China increased. A further $80m ($78m
goodwill/$2m brand names) was impaired to the Australian business in FY14 due to the continued reduced earnings,
compounded by a change in growth rate assumptions from 3% to 2%.
There is a risk of further impairment however intangibles are reviewed annually and as at YE14 all segments’ net
present value (NPV) exceeded their net assets. The Australian business had a net asset surplus to NPV of $45m
(FY13; $Nil), the Home Appliance business surplus was $16m (FY13; $9m) and NZ surplus was NZ$11m (FY13;
NZ$15m).
There is also risk that the divestment of the household consumables or New Zealand housewares businesses could
trigger further impairments of intangible assets. At 1H15 these businesses were held on the balance sheet at a
value of $36.2m (net) and it is estimated that if for example, these are sold 10% below management estimates, an
impairment of approximately $3.6m would be recognised.
Outlook: After several years of earnings headwinds, MCP has provided market guidance of an underlying FY15
profit before tax growth rate of 5-10% to about $20m (~$19m FY13) as the business transformation reaches its final
stages. The increase in earnings is aided by acquisitions, new agencies and new products in the Health & Beauty and
Home Appliances divisions offset by the divestment of the Housewares business.
Impact of a falling AUD
Given MCP purchases a proportion of its product in USD (currently some 68%) a depreciating Australian dollar
increases the cost of goods and therefore impacts the businesses profitability. This is a key risk for the business
particularly given the significant fall in the dollar over the last 12 months and the weak outlook for the currency.
During 1H15 gross margins fell 171bp (compared the corresponding half) to 41.6% largely due to the weaker AUD.
To mitigate against a weaker AUD, MCP is reducing USD purchases by increasing its exposure to Australian sourced
health and beauty product and selling its housewares and household consumables businesses (which are heavily
exposed to the currency). MCP expects 68% of its FY15 purchases to be in USD, down from 85% in FY14. MCP
also hedges 100% of anticipated cash flows for the next eight months and as such the group have fully hedged the
USD exposure out to the end of 2015.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 10 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
If there was to be a significant and sustained fall in the exchange rate MCP would have to increase prices. It is
estimated that a 10% fall in the AUD/USD rate would increase purchasing costs by around $13m. Based on $350m
of revenue the group would need to increase pricing by less than 4% on average across the product ranges to cover
the rise in costs. Passing on price increases to customers in Health and Beauty and Home Appliances would be
relatively straight forward however in household consumables where powerful grocery customers dominate, it would
be more challenging. A declining AUD however is an industry wide phenomenon with the entire Australian import
market required to increase prices to maintain margins.
Figure 12: Balance sheet
FYE 30 Jun ($m)
Cash
Accounts Receivable
Inventory
Assets held for sale
Other
Current Assets
Property, plant & equipment
Intangibles
Other
Total Assets
Accounts Payable
Working Cap facility (new)
Employee Benefits
Current Liabilities
Secured Debt (old facility)
Unsecured Debt
Other
Total Liabilities
Total Equity
Credit Stats
Current Ratio (%)
Quick Ratio (%)
Total Debt / Tangible assets
Total Liabilities /Tang Assets
Debt /(Debt+Equity)
FY11
1.7
57.9
59.7
119.3
23.7
179.2
8.1
330.3
36.7
56.4
58.2
34.5
129.5
200.8
211.7%
105.8%
40.4%
89.8%
22.5%
Actual
FY12
FY13
(0.2)
1.3
55.6
56.8
53.4
67.6
0.1
5.3
108.8
130.9
7.1
7.7
184.0
168.1
5.5
5.6
305.4
312.3
30.1
38.9
5.5
40.0
55.9
76.5
70.9
25.8
27.9
132.4
143.2
172.9
169.1
272.3%
138.8%
66.0%
114.2%
30.7%
234.0%
113.2%
51.2%
103.3%
29.5%
FY14
3.7
63.3
45.5
53.3
165.8
6.0
88.3
6.0
266.1
50.6
5.9
83.4
78.4
36.6
171.5
94.5
198.8%
144.3%
45.6%
99.8%
45.3%
6 Month
1H15
11.9
63.4
60.2
42.8
4.7
183.0
5.9
89.9
14.3
293.2
70.3
-
33.9
184.9
108.3
FY15*
21.1
57.8
48.6
42.8
170.3
7.2
88.3
11.7
277.5
54.1
20.0
5.9
105.6
60.0
35.2
175.3
102.1
Forecast
FY16*
23.3
57.0
51.8
42.8
174.8
8.4
88.3
11.7
283.2
53.4
20.0
5.9
104.8
60.0
35.2
174.6
108.6
FY17*
22.1
58.7
59.3
42.8
182.9
9.7
88.3
11.7
292.6
55.0
20.0
5.9
106.5
60.0
35.2
176.2
116.4
260.3%
174.6%
39.7%
91.0%
42.7%
161.3%
115.3%
43.7%
95.7%
43.9%
166.7%
117.3%
42.3%
92.4%
42.4%
171.8%
116.1%
40.3%
88.9%
40.7%
70.3
80.7
*Bloomberg consensus forecast adjusted for new bond and working capital facility
MCP’s balance sheet (Figure 12) reflects the nature of its business as a wholesale distributor with a high level of
receivables and inventory. The company’s working capital movements are seasonal as it builds inventory levels prior
to the Christmas period. At 31 December 2014, MCP’s had gross debt of $80.7m and net debt of $69m (at which
time receivables were $63.3m) however debt peaked over this period at $104m in November 2014. Management
forecasts peak month end debt requirements of ~$110m which occurs around October/November each year,
however the company requires additional liquidity to cover intra month working capital increases of up to $15m.
While the new working capital facility is estimated to be drawn to $20m at year end over the forecast period, this is
based of historic year end values. In terms of interest calculations, the forecasts are based on an estimated average
working capital facility utilisation 75% over the financial year ($54.75m).
MCP carries significant intangibles of $89.9m 1H15, accounting for 30% of total assets. This represents $35.4m of
goodwill, $52.4m in brand names and $2.0m in other intangibles (software etc.). MCP’s sourcing capabilities are not
explicitly recognised on the balance sheet. As discussed previously, there is a risk of further impairment however
intangibles are reviewed annually and as at YE14 all segments’ NPV exceeded their net assets.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 11 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
MCP is seeking to divest the Household Consumables business (including Multix) and the Housewares business which
have therefore been classified as current assets under “other”. These businesses represent $42.8m of other current
assets and include includes $16.9m of inventory and $25.2m of intangibles. As discussed previously, there is a risk
that the divestment of these businesses could trigger further impairments of intangible assets if the sale amount is
below management estimates. The sale of 51% of the Australian housewares business (JV with Fackelmann) was
completed in November 2014 and the sale of the Household Consumables (Multix) business is due to be completed
within 12 months. Sale proceeds could be used to reduce debt and/or fund acquisitions.
Figure 13: Cashflows
FY11
Actual
FY12
FY13
FY14
17.8
2.6
4.7
16.5
41.6
16.5
2.7
2.1
(4.9)
16.3
(26.4)
2.7
(6.7)
50.0
(4.8)
14.8
(70.7)
2.9
27.3
80.0
(16.4)
23.2
Capital Expenditures
Acquisitions
Disposals
Other
Net Investing Cashflow
(7.0)
0.6
(6.4)
(5.5)
(6.3)
0.0
(7.2)
(19.0)
(3.2)
(21.2)
0.1
(24.3)
(2.5)
(23.7)
2.3
(23.9)
Total Dividends
Equity Raised / (Repaid)
Related party transactions
Net Borrowings
Other Financing
Net Financing Cashflow
(15.9)
1.2
(20.0)
(0.0)
(34.6)
(17.4)
19.5
(0.1)
2.0
(10.7)
32.9
(11.2)
11.0
0.5
(0.7)
1.4
FYE 30 Jun ($m)
6 month
1H15
FY15*
Forecast
FY16*
FY17*
12.9
15.3
2.9
5.9
(4.4)
19.7
16.2
2.8
(3.1)
15.9
19.4
2.7
(7.6)
14.4
(3.7)
(4.0)
7.8
3.8
(4.0)
(4.0)
(4.0)
(4.0)
(8.7)
4.7
7.2
3.1
(9.7)
(9.7)
(11.6)
-
(1.8)
(7.7)
1.6
(6.1)
(11.6)
2.4
7.5
17.4
2.1
(1.2)
Operating Cashflow
Net Income
Depreciation & Amortisation
∆ Working Capital
Impairments
Other
Net Operating Cashflow
Investing Cashflow
Financing Cashflow
Net Cashflow
*Bloomberg consensus adjusted for new bond and working capital facility
MCP has a continued focus on working capital efficiency resulting in consistently sound net operating cashflow over
the last four years. The majority of one off costs impacting the group have been non cash writedowns and the
underlying business remained cash generative posting $16.3m, $14.8m and $23.2m in cash from operations in FY12,
FY13 and FY14 respectively. In 1H15 cash from operations was $12.9m, significantly above 1H14 of $2.5m.
The group has made various acquisitions which have been funded via equity raisings and free cash flow. In FY13
MCP raised $33m in equity (net of costs), with $24m in a placement to institutional and sophisticated investors at
$2.20 per share and $9m to retail investors at $2.10 per share.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 12 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
Equity and shareholding
Figure 14: Equity performance
$3.00
Price ($ LHS)
Volume ('000 RHS)
$2.50
4.00
3.50
3.00
$2.00
2.50
$1.50
2.00
1.50
$1.00
1.00
$0.50
0.50
$0.00
18/3/13 18/6/13 18/9/13 18/12/13 18/3/14 18/6/14 18/9/14 18/12/14
0.00
Since a high of approximately $3.30 in early 2011, the share price fell to $1.75 before lifting again after the sale of
the printing business in late 2012. It reached a peak of $2.49 in early 2013 and then fell sharply on the back of
impairments in mid-2013 to around $1.25. MCP has traded between $1.00 and $1.50 for the last 18 months and has
stayed relatively stable around $1.25 for the last six. The current market capitalisation is ~$120m. The group has a
dividend payout policy of 60% of NPAT.
Figure 15: Top 10 shareholders
Holder name
HSBC Custody Nominees (Australia) Limited
%
15.61
RBC Investor Services Australia Nominees Pty Limited
National Nominees Limited
8.88
5.95
AMP Life Limited
Citicorp Nominees Pty Limited
4.83
3.63
BNP Paribas Noms Pty Ltd
J P Morgan Nominees Australia Limited
3.20
1.64
Equitas Nominees Pty Limited
Sandhurst Trustees Ltd
1.20
1.13
Mr David Madden
0.91
MCP has a relatively diverse shareholder base for this sized business (Figure 15). ~47% of the company is held by
the top 10 shareholders. MCP raised equity in FY13 which was fully subscribed. It is likely shareholders would be
broadly receptive if further shareholder support was sought.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 13 of 22
McPherson’s Ltd
20 March 2015
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| Brisbane | Perth
Unsecured Note structure
Figure 16: Key structural features
Issuer
Guarantors
Offer size
Ranking
Minimum parcel size
Face value of each Note
Series
Interest type
Interest rate
Maturity date
Issuer call option
Change of control
Covenants
Event of default
McPherson’s Limited
McPherson’s Consumer Products Pty Ltd, Electrical Distributers Australia Pty Ltd, McPherson’s
Consumer Products (HK) Ltd, McPherson’s Consumer Products (NZ) Ltd
$60,000,000 comprising two $30m Series (A and B) with four and six year maturities
Senior unsecured
$50,000 (per Series)
$1,000
A
B
Floating rate
Fixed rate
430bps over 90 day BBSW (paid quarterly in
7.10% (paid semi-annually in arrears)
arrears)
March 2019 (four years)
March 2021 (six years)
March 2017 at $103.00 (two years)
March 2018 at $103.00 (three years)
March 2018 at $101.50 (three years)
March 2019 at $102.00 (four years)
March 2020 at $101.00 (five years)
Investors have the option but not obligation to put the bonds back to the issuer at $101
Negative pledge
Cross default to other debt
Limitations on new financing of secured debt (max 3.0x EBITDA)
Limitations on total debt incurrence (minimum Interest Coverage Ratio of 3.5x measured as
EBIT/Interest)
Dividend restrictions (distributions shall not exceed 100% of NPAT)
Restrictions on Asset Sales and application of Proceeds
Failure to pay (i.e. non-payment of interest or principal on bank facility or senior unsecured
bonds)
Unrectified breach of senior unsecured bond covenant breach
Cross default to other debt
Figure 16 highlights the key features of the Notes. The Notes issued will comprise two $30m Series, raising $60m.
Investors can elect to participate in either or both Series. Each note will subsequently trade separately on the
secondary market:
o Series A Notes: $30m Floating Rate Notes (FRNs) due March 2019 issuing at 4.30% over 90 day BBSW delivering
a first rate set* of 6.60% and an estimated YTM* of 6.70%
o Series B Notes: $30m Fixed Rate Notes due March 2021 on a semi-annual basis at 4.60% over the fixed 6 year
interest rate swap delivering a YTM and Coupon 7.10%*
* Based upon current market rates
Under the terms of the Notes, guarantees must exist so that at all times at least 90% of consolidated EBITDA and at
least 90% of total tangible assets are captured in favour of the issuing entity, MCP. The unsecured structure for the
MCP Notes has the same principal bondholder protections (incurrence based covenant package, restricted payments
to equity, cross default to other debt and unilateral enforcement rights upon an un-remedied Event of Default) as
other FIIG led transactions such as Silver Chef Limited, Mackay Sugar Limited, G8 Education Limited and Cash
Converters International Limited.
The Information Memorandum contains the terms and conditions, including the full covenant package for the
offering and investors are strongly encouraged to review it. The covenants below should be read in conjunction with
Clause 5.1 and Clause 5.2 of the Conditions section of the Information Memorandum. The covenants offer investor
protections in three primary areas:
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
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McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
1. Negative Pledge
o
Over the life of the Notes, the Negative Pledge covenant restricts the ability of MCP (and its subsidiaries) to
create or permit any Security Interest to exist on assets and/or revenues that will rank ahead of Note holders,
other than a Permitted Security Interest. (In simplistic terms, Security Interests are generally secured bank debt
and Permitted Security Interests are generally the existing or any new secured bank facility, with the Negative
Pledge designed to limit the amount of prior ranking debt secured debt that is permitted in front of the Notes)
o
The level of Permitted Security Interest that will be allowed by way of a new secured debt facility or refinancing
has been set at the ratio of the total of all available secured debt to EBITDA of the group for the previous 12
months being not more than 3.0x
2. Limitation on Debt Incurrence
o
The covenant restricts the ability of MCP (and any member of the group) to incur any new debt which causes
the Interest Cover Ratio (EBIT/total interest) of the group for the previous 12 months to reduce below 3.5x
3. Restricted Payments to Equity
o
The covenant restricts the ability of MCP to distribute payments outside of the group to equity holders and
restricts conducting capital management activities, including share buybacks, or paying special dividends
o
In respect of distributions in the ordinary course of business, MCP is restricted to paying distributions exceeding
100% of net profit after tax for the previous 12 months
o
So long as an Event of Default is subsisting, the group will be unable to declare or pay a dividend or make any
Distribution on any issued share in the Issuer, or pay any interest or other amounts in respect of any debt
security issued which ranks behind the Notes in priority for payment of interest
Events of Default
o
Non-payment of interest and principal
o
Cross default and other standard events of default
The unsecured nature and guarantee structure in place for the bonds means bondholders rank alongside regular
creditors in a wind up scenario.
Strengths
o Formed in 1860 the group is an ASX listed diversified consumer business with a large portfolio of leading market
brands selling to an extensive customer base of some 10,000 retail outlets
o A long established trading history with a competitive advantage in supply chain management and the marketing
of complex and extensive ranges of products
o The company owns a diversified portfolio of well-known brands including Manicare, Lady Jayne, Dr LeWinn’s,
Swisspers, Euromaid, Baumatic and Multix and manages some significant brands for overseas agency partners
such as Procter&Gamble (Hugo Boss, D&G and Gucci fragrances) and Trilogy
o MCP is coming to the end of a business transformation process of selling down less profitable businesses,
acquiring stronger higher margin brands and reducing exposure to the competitive, low margin grocery channel
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 15 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
o While suffering from losses over the last few years this was driven by non-cash writedowns with the underlying
business remaining cash generative
o The business has returned to profitability 1H15 and is expecting growth of 5-10% in underlying FY15 profit before
tax to around $20m
o MCP is seeking to divest the Household Consumables business (including Multix) and the Housewares business.
Sale proceeds could be used to reduce debt and/or fund acquisitions
o The group’s recent acquisitions are generating 15%+ return on funds employed
o MCP’s Kingsgrove distribution centre continues to have excess capacity with only ~70% of the facility being
utilised. If suitable new acquisitions/product lines are added efficiencies will be realised
o MCP has a proven and qualified management team and board, with extensive experience in the industry and have
done a solid job in transforming the business
o ASX listed with access to equity funding if required and the benefit of continuous disclosure requirements
Risks
o A key risk to the business is a weakening AUD given ~68% of purchases are in USD. While the group has reduced
this exposure and employs various hedging strategies, a significant or prolonged fall in the AUD would have a
material effect on the business. A material proportion of the group’s inventory prices are also influenced by
movements in commodities such as resin and aluminium
o While the restructure and business transformation is yielding good results, MCP may still face issues similar to
those which have previously affected the business given the nature of the industry (consolidation of the Australian
grocery channel, growth of private label and brand rationalisation)
o MCP has exposure to the low margin grocery segment where players have significant market power and ability to
resist price increases. MCP is also exposed across its range to the loss of a major client, ‘de-ranging’ after retailer
brand reviews and/or increased private label competition as well as exposure to liability claims and product recalls
o MCP has a significant proportion of intangible assets and further non-cash write downs are possible
o The group has high levels of gearing however these are manageable and interest cover remains strong
o MCP faces integration risks associated with acquisitions as well as the risk to overpay for future acquisitions
o Given the multiple acquisitions and divestments, there is a lot of “moving parts” and “noise” in the financial
statements making it difficult to get a clear picture of the underlying business
o The Notes rank behind the secured bank facilities and in a liquidation scenario it is likely that there would be
insufficient asset value to repay Noteholders in full with a significant shortfall possible
o The higher return investors are paid for high yield bonds (as opposed to investment grade bonds) is
compensation for the higher risk associated with this market such as the possibility of greater volatility, lower
liquidity in a stressed market and higher risk of default
o The Notes can be called early at certain intervals at the issuers discretion which may not be in the Noteholders’
best interest
o Noteholders are subject to refinance risk: At maturity of the Notes, should the company face financial issues or
the market for finance closed or prohibitively expensive, this could impact MCP’s ability to repay Noteholders
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 16 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
o We recommend investors also read the section in the Information Memorandum titled “Key Risk Factors”
Conclusion
MCP is an ASX listed leading supplier of health and beauty, consumer durable and household consumable products in
Australasia. Formed in 1860 the group has approximately 800 staff. MCP’s competitive advantage is in supply chain
management and the marketing of complex and comprehensive ranges of products to a large customer base.
While suffering from losses over the last few years this was driven by non-cash writedowns and the underlying
business remained cash generative. MCP and is coming to the end of a business transformation process and
returned to profitability 1H15. The group has a strong management team and board, with extensive experience in
the industry and have done a solid job in transforming the business.
MCP is seeking to raise $60m in unsecured notes to refinance existing debt. The Notes are offered in two Series:
Series A with $30m at a floating rate of 90 day BBSW+430bps p.a. for four years (callable at the company’s option
after two years at $103 or after three years at $101.50); and Series B $30m at a fixed rate of 7.10 % p.a. for six
years (callable at the company’s option after three years at $103, after four years at $102 or after five years at
$101). Investors can elect to participate in either or both Series. Each note will subsequently trade separately on
the secondary market.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
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AFS Licence No. 224659
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McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
Appendix 1: Board of directors
David J. Allman B.Sc. Non-Executive Director and Chairman of the Board. Mr Allman was appointed
Chairman of McPherson’s Limited on 18 November 2011. Prior to this he held multiple senior positions with the
group including Managing Director and Chief Executive. Prior to joining McPherson’s Mr Allman was Managing
Director of Cascade Group, and held senior positions with Elders IXL Limited and Castlemaine Tooheys.
Paul Witheridge, B.Com, CA. Chief Financial Officer and Joint Company Secretary. Mr Witheridge was
appointed Chief Financial Officer and Joint Company Secretary of McPherson’s on 1 December 2011. In May 2010 Mr
Witheridge was appointed the Chief Financial Officer of McPherson’s Consumer Products. Before joining McPherson’s,
Mr Witheridge held senior financial and company secretarial positions with a number of listed companies in the retail
sector including Angus and Coote Limited and OPSM Limited. Prior to that Mr Witheridge spent six years within
KPMG’s Audit and Assurance Practice.
Philip R. Bennett, B.Com, CA. Joint Company Secretary. Mr Bennett was appointed Company Secretary of
McPherson’s on 2 February 2012. Mr Bennett had previously held the position of Chief Financial Officer of
McPherson’s since 2000, and Company Secretary from 1995; however Mr Bennett stepped down from both these
positions in November 2011.Before joining McPherson’s, Mr Bennett held senior financial and company secretarial
positions with another listed company, and prior to that was a senior manager with a major Australian chartered
accounting firm.
Paul J. Maguire B.Sc (Hons), M.Bus (Marketing). Managing Director. Mr Maguire was appointed Managing
Director of McPherson’s on 1 November 2009. Mr Maguire was Chief Executive of Multix Proprietary Limited from
2002, and following the combining of McPherson’s two consumer products businesses, McPherson’s Consumer
Products and Multix, into a single entity in July 2009, Mr Maguire took the position of Chief Executive of the enlarged
business. Before joining Multix (which was acquired by McPherson’s in 2004), Mr Maguire worked in a number of
management roles for SCA Hygiene Products Australasia. Mr Maguire has a Masters of Business (Marketing) from
Monash University and an Honours Science Degree from La Trobe University.
Graham A. Cubbin, B.Econ. (Hons) Non-Executive Director. Mr Cubbin was appointed a Non-Executive
Director of McPherson’s Limited on 28 September 2010. Mr Cubbin worked for Consolidated Press Holdings Limited
(CPH) from 1990 until September 2005, including Chief Financial Officer for 13 years. Prior to joining CPH, Mr Cubbin
held senior finance positions with a number of major companies, including Capita Financial Group and Ford Motor
Company. Mr Cubbin has over 20 years’ experience as a Director and audit committee member of public companies
in Australia and the United States.
Amanda M. Lacaze, B.A. Non-Executive Director. Ms Lacaze was appointed a Non-Executive Director of
McPherson’s on 22 September 2011. Ms Lacaze has an extensive executive career as a chief executive and as a
marketing executive. She is currently CEO & MD of Lynas Corporation Ltd. Previously she has been CEO & MD of
Commander Communications, Executive Chairman of Orion Telecommunications, and CEO of AOLI7. Prior to these
roles Ms Lacaze was Managing Director of Marketing at Telstra, and held various business management roles at lCl
(now Orica).
Jane M. McKeller, Non-Executive Director. Ms. McKellar was appointed a Non-Executive Director of
McPherson’s Limited on 24 February 2015. Ms. McKellar is an experienced non-executive director of both public and
private companies in Australia and overseas. She is currently a non-executive director of ASX listed company
Helloworld Limited, and is a member of their board’s nomination and remuneration committee. Ms. McKellar
commenced her career at Unilever in London and has subsequently held a number of other relevant senior executive
positions both in Australia and internationally, including Director of Sales and Marketing at Microsoft (MSN) and
Founding Director of Ninemsn.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 18 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
Appendix 2: Peer analysis
Company
ASX Code
Reference Items ($m)
Market Cap
Revenue
EBITDA*
EBIT*
Interest expense
NPAT
CFO
Cash
Working Capital
Tangible Assets
Debt
Equity
Debt + Equity
Credit Metrics
EBITDA/Rev margin
EBITDA/Int Expense
EBIT / Int Expense
CFO/Debt
Working Cap/Sales
Debt/EBITDA
Net Debt/EBITDA
Debt/Tangible Assets
Debt/Debt+Equity
FY14
McPhers
ons
MCP
FY15F
McPhers
ons
MCP
FY14
GUD
Hlds
GUD
120.0
354.1
29.1
26.2
6.6
(70.7)
23.2
3.7
29.1
171.8
78.4
94.5
173.0
120.0
361.0
32.2
29.3
7.1
15.5
20.0
21.2
22.0
183.3
80.0
102.2
182.2
8.2%
4.4x
3.9x
29.6%
8.2%
2.7x
2.6x
45.6%
45.3%
8.9%
4.5x
4.1x
25.0%
6.1%
2.5x
1.8x
43.6%
43.9%
FY14
Breville
BRG
FY14
Black
more's
BKL
FY14
Aus
Pharma
API
FY14
GWA
Group
GWA
FY14
Dicker
Data
DDR
569.0
591.6
63.4
49.0
6.4
17.7
29.6
23.3
117.6
269.1
121.7
209.3
331.0
925.0
541.5
77.9
70.0
1.9
48.8
51.2
70.9
149.4
253.2
23.8
213.0
236.9
731.0
346.8
46.1
39.8
4.8
25.4
37.5
18.6
77.3
197.6
73.0
104.2
177.2
552.0
3,345.9
74.9
65.1
19.0
(90.8)
64.2
23.5
245.0
1,087.9
122.8
480.7
603.5
889.0
578.0
89.9
72.3
11.2
18.6
33.9
29.9
141.7
369.6
175.0
426.0
601.0
131.0
662.8
20.7
19.2
5.1
5.2
15.8
18.2
(33.9)
287.5
118.2
20.4
138.6
10.7%
9.9x
7.7x
24.3%
19.9%
1.9x
1.6x
45.2%
36.8%
14.4%
40.2x
36.1x
214.6%
27.6%
0.3x
-0.6x
9.4%
10.1%
13.3%
9.5x
8.2x
51.4%
22.3%
1.6x
1.2x
37.0%
41.2%
2.2%
3.9x
3.4x
52.3%
7.3%
1.6x
1.3x
11.3%
20.3%
15.6%
8.0x
6.5x
19.4%
24.5%
1.9x
1.6x
47.3%
29.1%
3.1%
4.1x
3.8x
13.4%
-5.1%
5.7x
4.8x
41.1%
85.3%
*Underlying before significant items. Source: FIIG Securities, Company accounts
Given MCP’s diverse portfolio of products it is difficult to find an appropriate single peer; however, there are several
distribution and marketing companies that are comparable (to some extent).
The top 2 peers for MCP are:
o GUD Holdings – diversified distribution across Consumer, Automotive, Water and Industrial. Key brands include
Sunbeam, Oates, Dexion, Ryco, Wesfil, Goss, Davey, and Lock Focus
o Breville - engages in the development, marketing and distribution of small electrical kitchen appliances to the
consumer products industry
And to a lesser extent:
o Blackmore - is engaged in development, and sales and marketing of health products
o Australian Pharmaceutical Industries - is an Australian health and beauty services company. It has as a number of
brands and banners, including Priceline, Soul Pattinson and Pharmacist Advice and has 3 main businesses,
Pharmacy Distribution, Manufacturing and Retail
o GWA Group - is an supplier of building fixtures and fittings to households and commercial premises
o Dicker Data - is a wholesale distributor of computer hardware and related products
MCP ranks acceptably amongst the group of peer distribution companies. It is smaller and hence has a higher
reliance on debt funding resulting in higher debt / EBITDA and debt / Debt + equity ratios. Working capital
efficiency (working capital/sales) is the second highest in the above peer group and net debt/EBITDA (FY15
forecast) is in line with its peers around 1.5x. EBITDA margins are low compared to the majority of the group and
against GUD and Breville. While the group are focusing on improving margins through the strategic transformation,
these will be impacted by the falling AUD.
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 19 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
Appendix 3: Corporate structure
Source: FIIG Securities, Company reports
The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced, distributed or provided
to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the
recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and
reserves its rights to prosecute for breaches of those rights.
© 2015 FIIG Securities Limited
| ABN 68 085 661 632 |
AFS Licence No. 224659
Page 20 of 22
McPherson’s Ltd
20 March 2015
Sydney | Melbourne
| Brisbane | Perth
Appendix 4: Credit statistics
Reference Items ($m)
Operating Cashflow
EBITDA
EBITDAR
Funds From Operations
EBIT
Net Acquisition & CAPEX
Interest expense
Occupancy
Cash
Total Debt
Total Net Debt
Total Liabilities
Tangibles Assets
Equity
Credit Ratios
EBITDA Interest Cover
EBIT Interest Cover
FFO Interest Cover
Fixed Charge Cover
Op Cashflow Int Cover
Total Debt / EBITDA
Net Debt / EBITDA
Net Debt/Op Cashflow
FFO/Debt (%)
Net ACQ & Capex/EBITDA
Total Debt/Tang Assets
Total Liabilities/Tang Assets
Debt /(Debt+Equity)
Net Debt to Cap Ratio
Net Debt/Equity
Asset Coverage
Tangible Asst/Total Debt
FY11
FY12
FY13
FY14
FY15*
FY16*
FY17*
41.6
46.9
58.7
39.8
44.4
7.0
7.1
11.8
1.7
58.2
56.5
129.5
144.3
200.8
16.3
35.1
48.2
29.1
32.4
11.8
6.0
13.1
(0.2)
76.5
76.7
132.4
115.9
172.9
14.8
31.2
46.3
24.6
28.5
24.4
6.6
15.0
1.3
70.9
69.6
143.2
138.6
169.1
23.2
29.1
46.9
22.4
26.2
26.2
6.6
17.9
3.7
78.4
74.7
171.5
171.8
94.5
19.7
32.2
32.2
24.7
29.3
4.0
7.5
21.1
80.0
58.9
175.3
183.2
102.1
15.9
32.9
32.9
25.9
30.1
4.0
6.9
23.3
80.0
56.7
174.6
188.9
108.6
14.4
37.3
37.3
30.3
34.6
4.0
6.9
22.1
80.0
57.9
176.2
198.3
116.4
6.6x
6.2x
5.6x
3.1x
5.9x
1.2x
1.2x
1.4x
68.4%
16.9%
40.4%
89.8%
22.5%
22.0%
28.2%
5.9x
5.4x
4.9x
2.5x
2.7x
2.2x
2.2x
4.7x
38.1%
72.6%
66.0%
114.2%
30.7%
30.7%
44.3%
4.7x
4.3x
3.7x
2.1x
2.2x
2.3x
2.2x
4.7x
34.7%
164.9%
51.2%
103.3%
29.5%
29.2%
41.2%
4.4x
3.9x
3.4x
1.9x
3.5x
2.7x
2.6x
3.2x
28.6%
112.9%
45.6%
99.8%
45.3%
44.1%
79.0%
4.3
3.9
3.3
4.3
2.6
2.5
1.8
3.0
30.9%
20.3%
43.7%
95.7%
43.9%
36.6%
57.6%
4.7
4.4
3.7
4.7
2.3
2.4
1.7
3.6
32.4%
25.2%
42.3%
92.4%
42.4%
34.3%
52.2%
5.4
5.0
4.4
5.4
2.1
2.1
1.6
4.0
37.9%
27.7%
40.3%
88.9%
40.7%
33.2%
49.8%
2.5x
1.5x
2.0x
2.2x
2.3x
2.4x
2.5x
Source: FIIG Securities, Company reports
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AFS Licence No. 224659
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