• Revenue: $70.7 million from continuing operations, with $62.5 million from core brands.
• Underlying EBITDA: $2 million.
• Gross Margin: 58.7%, slightly behind the prior comparative period.
• Net Cash Position: $11.6 million.
• Core Brand Performance: Manicare achieved $23.9 million, Swisspers $10.5 million, Lady Jayne $9.6 million.
• Employee Cost Savings: $1.7 million due to rationalization and restructuring activities.
• Advertising and Promotions (AMP) Spend: Front-weighted with a $4.1 million increase for core brands.
• International Sales Decline: Down $1.5 million, primarily due to Dr. LeWinns brand.
• Operating Cash Flow: $1.8 million, with a cash conversion rate of 137%.
• Expected Incremental EBITDA Benefit: $4 million to $5 million from FY26 due to new operating model.

• Warning! GuruFocus has detected 4 Warning Signs with ASX:MCP.

Release Date: February 26, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• McPherson's Ltd (ASX:MCP) achieved revenue of $70.7 million from continuing operations, with $62.5 million from core brands.
• Four out of five core brands showed growth, with Manicare, Swisspers, Lady Jayne, and Fusion Health performing well.
• The company maintains a healthy net cash position and a strong balance sheet, providing flexibility for transformation.
• The new route to market model is expected to unlock $4 million to $5 million in underlying EBITDA by FY26.
• The company has successfully reduced employee costs by $1.7 million through strategic rationalization and restructuring.

Negative Points

• Revenue declined by $5.8 million compared to the prior half, primarily due to exiting non-strategic and lower margin brands.
• Dr. LeWinns brand underperformed, with a 5.6% decline in sales, impacting overall core brand performance.
• The transition to a new route to market model will impact approximately 65 roles within McPherson's warehouse team.
• The company expects to incur one-off cash and non-cash costs of $9 million to $11 million in FY25 due to the transformation.
• The current direct-to-store model is not competitive, leading to extended lead times and distribution challenges.

Q & A Highlights

Q: What do you expect the net working capital benefit under the 3PL model on average over the course of a full year? A: Mark Sherwin, CFO: We expect the net working capital benefit to be significant, though we haven't specified exact numbers. Currently, we hold 120 to 150 days' worth of inventory, and we aim to reduce this by 25% to 40%, which would result in a substantial cash flow benefit in the millions.

Q: What is the operating status of the CWEDA including preferred brand? Will CMCP remain a preferred supplier to Chemist Warehouse? A: Brett Charlton, CEO: The preferred brands agreement with Chemist Warehouse has been successful, maintaining significant distribution for our brands. We have a strong relationship with Chemist Warehouse and expect to remain a preferred supplier due to our agreement. The EDA part has been challenging, but we are in discussions to improve this.

Q: Under the 3PL and pharmacy wholesale model, will you gain some distribution and improve stock availability? How much does this represent on the EBIT benefit? A: Brett Charlton, CEO: Yes, we expect improved distribution and stock availability. The pharmacy wholesalers can deliver to any pharmacy in Australia within 24 hours, which is a significant improvement over our current model. While we anticipate a 5% to 6% sales upside, it's difficult to quantify the exact EBIT benefit at this stage.

Q: How should we think about advertising and promotion (AMP) spend in the second half relative to the first half? A: Mark Sherwin, CFO: AMP spend in the second half will be lower than the first half, which was front-end weighted. We haven't provided specific guidance, but expect a reduction in non-working spend, such as research and digital asset development, which could be around a million dollars.

Q: What are the next steps to revitalize Dr. LeWinns, given the lack of new product development? A: Brett Charlton, CEO: We are planning a brand reset for Dr. LeWinns, focusing on innovation and anti-aging as a core part of the brand. We will update packaging and accelerate innovation plans to maintain its premium positioning. This includes rationalizing the range and focusing on distinct and unique offerings in the anti-aging skincare segment.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.