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Mixed results for McPherson’s

McPherson’s (ASX: MCP), marketer of non-electrical housewares, personal care, household consumable and merchandising products in Australasia, released its annual report, showing a mixed year of results.

Revenue was up 8.3% from $276.2 million to $299.2 million, yet due to impairments in intangibles and goodwill totalling $48.5 million, a net loss of $31.96 million was incurred. The impairment was an after tax charge relating to goodwill and brand names associated with the Australian cash generating unit. Excluding that impairment cost, the company’s NPAT would be $14.1 million.

Like for like sales were flat, growing only 0.8%, with acquisitions accounting for the remaining 7.5% of revenue growth. The company has four divisions — Housewares, Personal Care, Household Consumables and Impulse Merchandising. Personal Care was up 19%, helped by the acquisitions of Footcare International and Cosmex International (Moosehead and DaVinci brands). These acquisitions generated an annualised return on funds employed of more than 20%.

Housewares, of which Euromaid, IAG and ARC brands contribute 90% of its revenue, continued their steady growth, with the remaining 10% similar in sales to last year.

Household Consumables, under the brand name of Multix, were in line with last year. Sales of Impulse Merchandise were lower.

Profit margins were squeezed from price point strategies and promotions to offset the weaker retail demand. Also, the company has had to deal with rising production costs in China which it has been unable to pass along to the consumer due to the subdued market. At the same time, the weaker Aussie dollar has reduced its purchasing power for imported merchandise and materials.

An equity raising of $33.65 million occurred in March and with a $4.6 million share purchase plan in April, total outstanding number of shares increased by 23.3%, diluting earnings per share proportionately. Debt is being paid down steadily, and gross gearing is around 42% — still not too burdensome. Shareholder equity, $168.9 million, is down slightly from last year. Return on equity is presently 8.53%, slipping under 10% for the first time in the past 10 years.

This company’s performance is in contrast to small electrical appliance developer and distributor Breville Group (ASX: BRG) increasing its NPAT by 8.2%, and having a share price run up from $3 in February 2012 to almost $9. McPherson’s has gone from about $1.82 a share to currently around $1.50.

Foolish takeaway

This is the kind of company story that requires strong knowledge of the business and its industry to be able to project the mid-term prospects. It becomes a challenge for management, so knowing the business acumen and experience of management can’t go un-investigated, either. Execution of plans becomes vital, so make sure you know who is captaining the ship.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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