MGL
29/02/2016 15:53
HALFYR
PRICE SENSITIVE
REL: 1553 HRS Mercer Group Limited
HALFYR: MGL: Mercer Group Limited - Half Year Prelim Result - Dec 2015
Preliminary Half Year Result to 31 December 2015
Mercer Group continues on a path of change
Overview:
At the year ending June 30th 2015, Mercer Group Limited (NZX:MGL) announced
that it would continue to implement the necessary changes to its activities,
organisation and structure that would see the group focusing on the
opportunities in its Stainless and S-Clave divisions. The necessary
restructuring of the business has seen the performance impacted as the cost
base is not yet aligned with the ongoing structure. This coupled with
significant provisioning and write downs resulted in a loss for the six
months to 31st December 2015 of $4.7m.
Despite this, much has been achieved towards the stated goals, including:
1. The sale of the Medical division.
2. The sale of the Interiors division.
3. The acquisition of 100% of Titan Slicer Limited and the movement of the
Titan business to Mercer's premises in Christchurch.
4. The closure of the loss making Brisbane fabrication facility.
5. Beginning of the relocation of the head office from Auckland to
Christchurch.
6. Further developments in the S-Clave technology that have moved us to a
position where the time is right to look for additional resource in moving
this disruptive technology forward.
Mercer now has two clearly defined business units:
The Stainless Division this consists of plants in Christchurch and New
Plymouth with fabrication and a machines capability which designs,
manufactures and supplies food processing and packaging equipment. Titan, now
100% owned, is included in this business.
The Technologies Division: consists of the S-Clave sterilisation technology.
Given the different profiles of these two business units and their differing
capital and resource requirements, the Board has determined that they should
be separated. As such, we are currently exploring options for both business
units with a view to maximising shareholder value and allowing the businesses
to execute on their potential. Options being considered include the sale of
the S-Clave into a new entity with new capital being raised to fund it,
potentially in Australia, and the possible sale of the Stainless division. We
will update shareholders once we have considered the options.
An overview on the businesses is outlined below:
Stainless Division:
The Stainless division saw reduced revenues and profitability in the first
half. This was the result of the slowdown in the dairy industry which led to
reduced workflows from the historical highs seen last year and Titan
effectively stopped selling equipment while the operational issues were
resolved.
The Christchurch plant now has good fabrication and machines workflows and is
expected to generate a strong result in the second half. The New Plymouth
plant has seen fabrication workflows reduced somewhat but the food processing
and packaging ranges of Aico equipment, the Beta range and our cooking vessel
offering are all seeing good demand and to an extent are countering the lower
fabrication workloads.
The recall of Titan machines and the resulting loss of momentum was reported
on at the 2015 year end. With the operational issues now resolved we are
building sales with a focus on the North American market working closely with
our distributor Nu Meats.
With 100% ownership of Titan and moving its operations to Christchurch, we
have more control and a lower cost base from which to build the business. We
now have positive momentum and have sold four machines since January 2016,
including two of the Titan 200 range which are simpler machines that are
attractive to a larger market. We remain positive about the Titan product and
the size of the global market it operates in as well as the export led growth
opportunity it represents for Mercer.
We expect the Stainless division to generate a full year profit.
S-Clave:
We have continued to make material progress with our disruptive S-Clave
technology and are now looking to drive a pathway to commercialisation as
soon as practically possible. As outlined above, the Directors are of the
view that the S-Clave technology should be spun off into its own entity to
provide it with the capital and focus to execute on its exciting future.
Property:
Mercer owns its premises in Christchurch and New Plymouth. They are valued at
$5.7m. We are considering our options for these properties.
The Christchurch property at 53 Lunns Road is subject to a material
earthquake claim. We are in advanced discussions with our insurers and we
expect this process to conclude in the next three months.
Funding:
Both the Stainless business and the S-Clave represent exciting growth
opportunities, both of which require more capital, particularly given their
export focus. The separation of the businesses is expected to release capital
which will also reduce current debt levels.
In the short term, we continue to have the support of the BNZ and Gresham
Finance, a company related to director and shareholder Humphry Rolleston.
Appointment of CFO:
We are pleased to announce the recruitment of Ian McGregor as Chief Financial
Officer. He will join the Company in April and will be based in Christchurch.
Ian is a highly experienced finance professional, having previously been in
Treasury at Fonterra and CFO of Fisher and Paykel Finance.
Outlook:
We are in the middle of a period of significant change at Mercer. The two
remaining businesses have positive long term outlooks, but require differing
capital structures as well as different skills and resources. The Directors
are currently assessing options and will be communicating with shareholders
as decisions are reached.
We thank shareholders for their ongoing support.
For further information contact
Richard Rookes, CEO, 021 414 016
End CA:00278523 For:MGL Type:HALFYR Time:2016-02-29 15:53:39