McPherson's Limited (MCP) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to this meeting. My name is Ari Mervis, and I'm the Chairman of McPherson's. I've been advised that we have a quorum present, so I would like to officially open the 2023 Annual General Meeting for McPherson's Limited. As we gather for this meeting, I would like to take a moment to acknowledge and pay my respects to the traditional owners of the land upon which we are gathered and all the land upon which we conduct our business. I pay my respects to their elders, past and present. We are pleased to be hosting you here in Sydney with your Board members and some of our executive management team in attendance. This AGM is also being held online so that attendees can listen to a live webcast of the meeting, participate remotely. Joining me today in Sydney are my fellow Nonexecutive Directors, Helen Thornton, Alison Cook and Jane McKellar as well as our Managing Director, Brett Charlton; our CFO, Paul Witheridge; and our company Secretary, Linda Gough, who will also assist with facilitating the Q&A session. I'd also like to welcome Paddy Carney from our auditors, PwC, as well as [indiscernible], representing our share registry, Computershare. Welcome to you both. The notice of meeting for today's AGM was dispatched to shareholders on the 27th of October 2023. I will take the notice of meeting and the explanatory notes forming part of that notice of meeting as read. An outline of today's agenda meeting -- today's meeting agenda is now being shown. Following some housekeeping matters, I will address the meeting and then will ask Brett to speak in more detail regarding the company's performance and strategy going forward. The formal items of business to be covered at today's meeting are set out in the notice of meeting. We intend to introduce all of the formal agenda items. And after each item, we will pause briefly to take questions from shareholders both in the room and online. After all the formal resolutions have been reviewed, we will also pause for any further questions. Before I begin my address, I would, however, like to outline how you are able to ask questions, how to vote on the formal matters being considered at today's meeting as well. If you are in the room and would like to ask a question, at the relevant time, please raise your hand, and we will have a roving microphone that will come around to take your questions. [Operator Instructions] Please note that while you can submit questions from now on, I will only address them at the relevant time during the meeting. Please also note that written questions submitted online may be moderated or combined to avoid repetition. And if questions are particularly lengthy, they may need to be summarized. Finally, due to time constraints, we may run out of time to answer all of your questions. If this is the case, we will endeavor to answer them in due course via e-mail or by posting responses on our AGM website. When each resolution is considered, the related proxy voting results received to date will be displayed on the screen. After all resolutions are considered and after the general Q&A session at the end concludes, I will declare the poll for all resolutions closed. Directed proxies will be voted in accordance with the directions given. I will vote any undirected proxies left to my discretion as the Chair for each resolution in favor of that resolution. Shareholders entitled to vote at today's meeting have been validated at registration. Regarding shareholders that have appointed proxies and are also in attendance, please note the following. According to the company's constitution, the authority of the proxy to speak and vote for a shareholder at today's meeting will be suspended if the shareholder is present at the meeting. Therefore, if you have appointed a proxy to cast a vote on your behalf, your attendance and participation at today's meeting means a proxy can no longer vote on your behalf. In other words, you need to cast your vote yourself again in person at today's meeting. Voting for all resolutions today will be via a poll. Once I declare the polls open, those eligible to vote at this meeting may submit your vote at any time during the meeting until I declare the polls closed. I will now outline the online and in-room voting processes. Shortly, I will declare voting open on all items of business. At that time, if you are online and eligible to vote at this meeting, a new voting tab would appear on your screen. Selecting this tab will bring up a list of the resolutions and present you with voting options. To cast your vote, simply select one of the options. Your vote is automatically recorded. There is no need to press a submit or enter button. You do, however, have the ability to change your vote up until the time I declare the voting closed. Shareholders and proxyholders here in person have been provided with a handset on registration. Once voting opens, in-room attendees will be presented with a list of today's resolutions on screen. Use the trackball to highlight the resolution you wish to vote on and press the green square to confirm. The resolution text would appear on screen. Bring up the voting options by pressing the green square. Press 1 to vote for the item, 2 to vote against the item or 3 to abstain. To move on to the next item, press the green square or return to the full list of items, press the red triangle. I now declare voting open on all items of business. This means that you can vote or change your vote at any time during the meeting from now on until I declare the polls closed. I will provide you with a time warning before I move to close the voting. I would like to remind everybody that today's results on all resolutions will be published by the ASX market platform after we conclude today's meeting. Before I move to the formal business of the meeting, I would like to provide you with an overview of 2023 and some context for the path forward. McPherson's is entering a new era, focusing on our core markets of essential health, wellness and beauty. Your company owns some of the best-known brands and most recognized consumer brands in Australia. And with the right vision and strategy, we are ready to focus on what we do best, redefine the markets in which we operate and improve shareholder returns. Our new CEO, Brett Charlton, started nearly 4 months ago, and I'm delighted to introduce him to you today. As an experienced FMCG executive, Brett has, in a short period of time, immersed himself in the potential within McPherson's. He has reset the strategy and is embarking on an organizational transformation to support this. I'm shortly going to invite Brett to the lectern to introduce himself, share his initial observations of the company and provide details on the strategic update that we announced to the market on the 15th of November. Turning to the FY '23 financial results. The results for financial '23 were below expectations. And while there were a number of contributing external and macro factors, things needed to change. The Board has taken deliberate action to improve performance with a new leadership team and a tightened strategy. Financially, in the 12 months to June 2023, McPherson's recorded sales of AUD 210 million, being 2% below prior year. This decline was largely due to an $8 million reduction in sales of private label products as the company reduced its presence in this lower margin segment and an 11% reduction in the sales of Multix in the domestic grocery channel. Company-owned brands, however, grew by 10%. This was despite supply chain interruptions, which impacted the availability and sales of certain core Dr. LeWinn's offerings. While the 2% decline in sales was not significant, the EBIT shortfall was exacerbated by depreciation of the Australian dollar relative to the U.S. dollar, elevated commodity and sea freight costs, increases in advertising and promotional expenses and an increase in other operating expenses. These cost impacts collectively resulted in a $2.7 million decline in underlying earnings before interest and tax to a total of $9.1 million. Reported earnings were further impacted by $12 million of material items in 2023. The primary contributing factors were an $8.3 million noncash impairment taken on the Multix brand and a $3.4 million noncash impairment on other brands, particularly Maseur foot care. Cash conversion was 51% in 2023 with net bank debt at 30 June of $6.5 million, representing a gearing ratio of 6%. Given the company's strong balance sheet and available franking credit balance, the Board maintained a dividend payout of 100% of underlying profit after tax, declaring a full year dividend of $0.03 per share fully franked, of which the final installment of $0.01 per share was paid to shareholders on the 22nd of September 2023. McPherson's continues to implement its sustainability strategy with the objective of achieving our 4 sustainability goals: being net zero by 2035 across our Scope 1, 2 and 3 emissions; achieving the APCO sustainable packaging goals by 2025 across our core brands; implementing a sustainable supply chain policy; and ensuring our brand representation guidelines reflect diversity and promote a more inclusive society. We are committed to being socially responsible and dedicated to developing our community through collaboration and transformation. Over the last year, we have made conscious decisions to partner with organizations that align with our purpose and our values. We have donated products and in some instances, funds to organizations, including White Ribbon Australia, the Great Barrier Reef Foundation, The Pinnacle Foundation and Central Coast Kids in Need through Good360. McPherson's is committed to its sustainability journey and will continue to look for new ways to support our environment, people and community. Turning now to the Board and governance. The McPherson's Board continuously assesses the existing skill sets of directors, taking into account the current and future needs of the business. On the agenda today is the reelection of Jane McKellar as an independent nonexecutive director. Jane has served on the McPherson's Board since February 2015 and is a well-credentialed nonexecutive director with valuable and relevant customer-focused brand marketing and digital experience across a number of high-profile global businesses. Jane has provided particularly valuable input to the company in her role as the Chair of the People and Culture Committee. The Board is delighted that Jane is seeking reelection today for what will be her final term on the Board of McPherson's. As I mentioned earlier, in August 2023, Brett Charlton joined as our new CEO. Brett is an experienced leader and was previously Chief Skin Care Officer of Laser Clinics Australia and prior to that, was Managing Director of Sanofi Consumer Healthcare and Tip Top Ice Cream. Brett combines 25 years of marketing and branding experience with strong manufacturing and supply chain expertise with a customer, consumer, digital and data-first orientation, and we are pleased he has joined us to lead this next chapter of McPherson's. At today's meeting, you will also be asked to approve a resolution relating to the issue of performance rights to Brett under the McPherson's long-term performance rights plan. Before I hand over to Brett to tell you more about the strategy, I would like to take this opportunity to thank our management team and all our employees for their commitment over the last year. Their passion for what we do is what drives our purpose and nurtures confident, healthy and sustainable lifestyles. I would also like to thank my fellow directors for their diligence and wise counsel and, of course, you, our shareholders, for your enduring support. Thank you, and now over to Brett.

Thank you, Ari, and good morning, everyone. I am delighted to be joining you today for my first AGM as McPherson's CEO. I'm Brett Charlton. I have spent my career working in advising and leading fast-moving consumer goods companies. I am excited about what lies ahead for McPherson's. And since I joined in August, that excitement has really only grown. You don't need to tell me the McPherson's story and what an extraordinary story it is, but I do want to take some time today to explain why this opportunity is so compelling, why I'm pleased to have joined McPherson's and what I think I can offer and contribute. I'm then going to tell you some of the things that we are doing and the changes we are making as a part of our strategic reset. Like many of you, I was a consumer of McPherson's products long before I became the CEO. McPherson's products have been a staple in our household for years. As a consumer, these brands have been essential. And as a leader, I've come to see and understand that McPherson's is anchored in a collegial culture, exceptional products and genuine customer love. There is a huge opportunity ahead for our business. That opportunity, firstly, I think, is in our category. Essential health, beauty and wellness are higher growth categories ripe for expansion, innovation and sustainable solutions. They are also resilient categories, essential products that people need for their everyday lives, and we have a strong position in these categories and a foothold in many other categories. I have a deep understanding of these categories and the key players around them. And from my experience at Sanofi and as well as other FMCG companies, that's where I can contribute the most. Secondly, our brands. Our products touch 3 out of 4 Australian households according to independent research. We continue to innovate, but there is so much more that we could do. And I've worked with and for some great brands over my career, and I'm very passionate about building and enhancing great brands. Thirdly, McPherson's is a business that has form in identifying new markets, pivoting the entire business to meet those markets and then redefining those markets. And I can see that I can use my experience to help McPherson's embark on this new chapter. I believe we can create something truly memorable here. McPherson's is at a pivot point, and I believe we have everything to gain from this pivot. Earlier this month, on the 15th of November, we announced the first step in our transformation. In the 4 months since joining, the Board and leadership team have been evaluating and resetting the group's strategy. Our new strategy is to focus specifically on our strongest brands in the high-growth segments of essential health, wellness and beauty, in those markets. We've identified and started to implement clear actions to execute on our strategy and improve performance. We're going to focus on 5 core brands: Manicare, Lady Jayne, Dr. LeWinn's, Swisspers and Fusion. These are the brands we've identified as McPherson's most successful and recognizable brands. They're also in higher-margin categories where we can invest to achieve sustainable growth and increase our market share. In addition to our core brands, we're going to maintain our supporting portfolio brands, A'kin hair care, Maseur foot care, Wagner vitamins and supplements, Bondi fragrance, Foster Grant eye care, Oriental Botanicals supplements, INC sports nutrition and Happy Flora gut health support. These are great brands in attractive segments of the market and by continuing to support these brands, we will be able to offer an attractive range of in-demand consumer health, wellness and beauty products, primarily to the pharmacy and e-commerce channels. This will provide McPherson's with profit and scale. In time, profit from these supporting portfolio brands can, with an appropriately disciplined framework to assess returns, be reinvested back into our core brands and cause that portfolio to pursue higher margins, higher growth and higher market share. At this stage, however, we are focused on resetting our strategy and getting the systems, processes and culture in place to execute on this strategy. Some of the other steps we are taking to streamline our brand portfolio include exiting nonstrategic agency brand relationships. We are also ceasing lower-margin private label contracts so we can focus on our core brands and supporting portfolio brands. We are reshaping our operating model. Key to this is having a functionally based model in line with most FMCG companies. At the same time, we will continue to focus on execution in the Australia, New Zealand and international markets separately, recognizing the different needs of these markets and reflecting our focus on executing on our core business. But there is more work to be done. We are evaluating our organizational capabilities to create a greater focus on increasing productivity in sales, marketing, supply chain, HR and data analytics and to ensure we have what it's going to take to be successful. This will include rebalancing the skills McPherson's has to realize the full potential of our people, our brands and our customer relationships. All these changes have resulted in us removing approximately 40 positions across the business before the end of this calendar year, representing approximately 12% of McPherson's total workforce. This was not an easy decision in any way, but it was a necessary step to ensure we have the right structure and the right cost base to capitalize on the strength of our core brands while releasing funds for investment in productivity and profitable revenue-driving activities. The impacted employees leave with our gratitude and our admiration. We are immensely grateful for their contribution to McPherson's, and we will support them as they leave the company and seek new opportunities elsewhere. For the first 4 months of FY '24, McPherson's core brands have reported revenues down 3.5% with total revenues down 7% compared to the same period in FY '23. We have seen October revenues normalizing now that we have resolved supply chain issues and stock levels, particularly on our core brands. What is pleasing to see is that on a national -- on a moving annual total basis, MAT, our core brands are trading ahead of the category growth rates, driven by good marketing and customer plans with our largest trading partners, including Chemist Warehouse. The exception is Dr. LeWinn's, which was impacted by the now repaired supply chain disruption. McPherson's remains focused on driving improvements in contribution margins, including through a disciplined approach to cost, and year-to-date earnings are ahead versus the same period last year. McPherson's net bank debt and gearing continues to be modest with a reduction in working capital relative to last year, leading to improved operating cash flow for the first 4 months of FY '24. One of the things I've been impressed with since starting is the culture at McPherson's, our people, who reflect the culturally diverse composition of Australia. We are collegial. We share a passion for our brands and our customers. It's quite the family as you would expect a 163-year-old company to be. We have people who have worked for McPherson's for 52 years, for their entire working career. We have parents working alongside their children. We have team members who have met at McPherson's, married and now work together at McPherson's. Our people will continue to be at the heart of our business, and I want to ensure that they have every opportunity to grow and to develop with McPherson's. This includes learning new skills as we shift our organizational capabilities to match our strategy. Since I joined, we've made 2 important appointments to our executive leadership team. Hanli Pretorius joined us in October as Chief People Officer, and Stuart MacAulay has joined us as Supply Chain Director earlier this month. Both Hanli and Stuart bring a wealth of experience to McPherson's, and I am delighted they have joined us, and I look forward to their contribution. McPherson's purpose is to provide care solutions to nurture confident, healthy and sustainable lifestyles. We have great foundations from which to achieve this purpose, leading brands in attractive categories. And now we have a new strategy focused on driving sustainable growth and higher margins for our brands. We are focused on what makes sense, making the most of our strongest brands. We are being deliberate and intentional about how we redesign the organization for the next chapter, and we are being thoughtful and disciplined in how we evolve the support structures across the group, such as research and development, technology and IT, supply chain and marketing, all supported by a transformation office designed to coordinate actions to meet the demands of our new strategy. Today, we are at a new pivot point, one that we are incredibly excited by as we narrow our focus and begin a new business model and a new chapter for McPherson's. I thank you for your support, and I look forward to updating you on our progress. And I'll hand now back to Ari for the formal component of today's meeting.

Thanks very much, Brett. We will now proceed to the formal business of the meeting. As indicated earlier, for purpose of the meeting, we will take the notice of meeting and explanatory notes as having been read. The first item in the notice of meeting is the consideration of the financial statements and reports for the year ended 30th of June 2023. Neither the Corporations Act nor McPherson's constitution requires shareholders to vote on or formally approve or adopt the financial report. However, shareholders can, of course, submit or ask questions regarding the financial report of the company. As I mentioned earlier, Paddy Carney is here today representing the company's auditors, PwC. And should there be any questions from shareholders in regard to -- with respect to the audit report, the conduct of the audit, the accounting policies adopted by the company or the independence of the auditor, then Paddy will be available to answer those questions. I will now briefly pause and ask if there are any questions regarding the financial reports. Any questions online or on the phone?

No questions online or on the phone.

Thank you. The second item of business is to consider the adoption of the remuneration report for 2023 as set out on Pages 40 to 62 of the company's annual report. Although this resolution is not binding on the directors of the company, it does provide an opportunity for shareholders to express an opinion regarding the company's remuneration policies. The outcome of the vote will be taken into consideration when reviewing remuneration policies and practices into the future. I now move that the company's remuneration report for the financial year ended 30 June 2023 is adopted. On the screen is a summary of the proxy voting received on this resolution. As I indicated earlier, polls for voting on this and every other resolution are currently open. Are there any questions regarding the remuneration report. Do we have any online questions or any questions on the telephone?

No questions, Mr. Chairman.

Thank you. The next item of business, ladies and gentlemen, is agenda item #3, which relates to the reelection of a nonexecutive director, Jane McKellar. In accordance with the requirements of ASX Listing Rule 14.4, having been reelected as a Director of McPherson's on the 4th of November 2020, Jane retires as a director of this meeting and offers herself for reelection. The Board, excluding Jane, are unanimous in their support of Jane being elected to the Board. I will now ask Jane to make a few comments regarding her background and her experience.

Thank you for the opportunity to speak to you as I seek reelection for what will be my final term on the McPherson's Board. My executive background is in international marketing and laterally as a CEO in fast-moving consumer goods, including personal care, prestige and the digital space with a focus really on consumer-centric brands. I've worked for companies such as Unilever, Microsoft, Elizabeth Arden and Stila Cosmetics. I've been a nonexec director for 8 years. And today, I sit on the Board of the NRMA and Noumi [ PCY ] Limited as well as McPherson's. I think this gives me a breadth of understanding of broad governance and strategic issues that Board members and companies grapple with daily. In the 8 years since I joined this Board, we've seen many changes, including refocusing to becoming a health, wellness and beauty business as well as a completely renewed Board, Chair, CEO and management team, all of whom I'm very much enjoying working with. As Chair of the People and Culture Committee, I've driven many of these new appointments. As with many businesses, there have been a number of ups and downs over those years. However, I stand today with as much, if not more enthusiasm about the direction and the opportunities for this iconic business under our terrific new CEO, Brett, and the team. I look forward to returning McPherson's to a performance that we can all be proud of. Thank you again for the opportunity to share a few words, and I appreciate your support on my reelection.

Thank you for that, Jane. For further information relating to Jane's qualification and experience, you can look -- find it set out on Page 8 of the explanatory notes of the notice of meeting and on Page 33 of the annual report. I have pleasure in moving that Jane McKellar is reelected as a Director of the company. I will now share with you a summary of proxy voting received on this resolution. Are there any questions relating to Jane's reelection? Do we have any online or telephone questions?

No questions, Mr. Chairman.

Thank you. Agenda item 4 is a resolution relating to the issue of performance rights to the CEO and Managing Director, Mr. Brett Charlton, which reads as follows: that for the purposes of Part 2E.1 of the Corporations Act and ASX Listing Rule 10.14 and for all other purposes, the grant of performance rights and shares on exercise of such performance rights to Mr. Brett Charlton, the Managing Director of the company, under the McPherson's Limited Performance Rights Plan and his employment contract with the company, is approved on the terms set out in the attached explanatory notes to this notice of annual general meeting. This is an ordinary resolution, and if passed, the issue of performance rights to the MD will be approved on the basis set out in detail in the explanatory notes to the meeting. I'll now share with you a summary of proxy voting received on this resolution. As full details on the proposed grant of performance rights to the Managing Director are set out in the explanatory notes to the notice of meeting, I do not propose to restate that information in detail. I will, however, welcome any questions in respect to the grant of rights to Mr. Charlton.

No questions online or on the phone.

Thank you very much. At this stage, I will now consider any further questions asked and submitted by shareholders. If there's anybody present in the room that would like to ask a question, please raise your hand. And anybody online who would like to ask a question, please submit them now for consideration. So we have a question in the room? [indiscernible].

Revaluation of intangibles. Was this forced by the bank, ANZ? I'm just curious. Was that forced upon McPherson's by the bank?

No. Okay. So in case anybody didn't hear the question, it's regarding the revaluation by reference the impairment of the assets. And the question was whether that related to any pressure from the bank, ANZ. The first point, I'll raise that ANZ are not our bankers at this point in time. But the second point I'm going to say is that the evaluation and valuation of our brands are done in strict accordance with the accounting policies and practices and based on future earning streams or different methodologies used. So it's based on our projections. It's been ratified and verified by the auditors and applied to such numbers. So certainly no external pressure applied on the company at all in that regard.

Mr. Chairman, we have a question online. The question is what time line has been given to dispose of the Multix brand.

So on the 15th of November, we announced that we were going to be undertaking a strategic review of the Multix brand. The strategic review will be supported by KPMG, and it's premature to establish what the outcomes of that review will be. The Board will diligently look at all options and alternatives. And based on the outcome of the strategic review, we'll come to an informed decision. Any further...

I have no further questions.

Any further questions in the room?

Yes, I have a question.

Sorry, just one sec. Sorry.

A'kin face cream, I thought, was supposed to relaunch, I think. So I know they got pulled out of Chemist Warehouse, et cetera. When are they kind of coming back again, if you guys have some information on that?

Sure. So A'kin, as you know, is our hair care brand, which is -- has got some significant competitive advantages. And what the team has done is they've been going through an exercise of reformulating, repackaging and repricing the product. It was recently launched. So in October, it started getting rerolled out into the market. So it's slowly starting to fill up the distribution gaps. We're very fortunate that with Chemist Warehouse, we have a tremendous strategic alliance. And so they will be relisting the range as well. The balance of our customer base and our consumer base have the opportunity to purchase it. Thank you for those questions, both online and in the room. I am shortly going to be closing the voting system, so please, if you can ensure that you have cast your vote on all resolutions. And if there are any challenges, if you can please just raise your hand and we can provide you with some support in that regard. Just give a few seconds for people to finalize their votes both here and online. [Voting]

I now declare that the polls for all resolutions are closed. As I indicated earlier, the results of voting will be announced later today on the ASX and uploaded on to the company's website. Ladies and gentlemen, that is all for the formal business of the meeting. I would like to thank you for your participation at the AGM and now declare the meeting closed.