McPherson's Limited (MCP) Earnings Call Transcript

Okay. Very good morning to everybody. Thank you to those of you who were able to join us here today in person and also welcome to those attending online via the webcast. Thank you for being here today for McPherson's Limited 2026 Annual General Meeting. My name is Ari Mervis, and I am the Chairman of the Board, and I will Chair the meeting. As we have a quorum present, I will now formally open the meeting. Firstly, I would like to acknowledge the Gadigal people of the Eora Nation who are the traditional land owners and custodians of the land upon which we are gathered today and pay my respect to the elders past and present. We're also meeting today for the first time at McPherson's new CBD office, which we have occupied since March this year. Having changed our operating model to a wholesaler and a 3PL system and no longer in the need of a large warehouse and office space. McPherson's took the opportunity to downsize the office and move its headquarters to a more central location. In attendance and sitting in the room here today, are my fellow Non-Executive Directors; Helen Thornton, Alison Cook, and John Batistich. As announced on the 28th of September, Alison will stand up from the Board after the 8-year service as a Non-Executive Director. During her tenure as a Non-Executive Director, Alison served as Interim Chief Operating Officer, Interim Chair of the Board, Chair of our former Risk and Compliance Committee and is the current Chair of our Remuneration, People and Culture Committee. As shareholders would expect, any new nonexecutive director appointment will be based on the skills and experience needed by the company to help it achieve its strategic objectives, and the new director would stand for election seeking shareholder approval and support at our 2027 Annual General Meeting. We also have our Chief Executive Officer and Managing Director, Brett Charlton, here today. As we announced to the market last week, Brett will step down as Chief Executive Officer and MD after over 3 years of leading the company. I will make some further remarks about Brett in my address later in the meeting. From our executive management team, we have our Chief Financial Officer, Mark Sherwin; our General Counsel and Company Secretary, Craig Durham also present today. Some of our other senior managers and executives are here as well as attending online. I would also like to introduce David Ronald and Monique Hill, both from PwC. David is our lead external partner on this year's external audit with this being David's first year of Audit Partner for McPherson's Limited. David will be available later in the meeting to take questions about the conduct of the audit, the preparation and content of the auditor's report, the accounting policies adopted by the company and the independence of the auditor. Chris Stojcevski, representing Computershare, is also in attendance. Chris will act as a returning officer for today's votes on the resolutions of today's meeting. As outlined on the agenda for today's meeting is now up on the screen. Following some administrative matters, I would address the meeting, and then Brett will speak in more detail about the company's FY '26 performance. The formal notice items of business to be covered at today's meeting are set out in the Notice of Meeting which I will take as read. However, I refer shareholders to our ASX announcement on the 19th of October 2026, notifying shareholders that the company has withdrawn Resolution 3 from consideration by shareholders at today's meeting. That withdrawal is, of course, based on Brett's decision to step down from the company. The withdrawal of Resolution 3 will not affect the validity of the proxy form accompanying the Notice of Meeting or any proxy forms already submitted in relation to votes validly cast on the remaining resolutions to be considered at the AGM, subject to voting eligibility criteria. I intend to introduce all formal agenda items other than Resolution 3. And after each item, we will pause briefly to take any questions, both in the room and online. After all formal resolutions have been put to the meeting, we will again pause to give you the opportunity for any further questions. I will now hand over to Craig Durham, our General Counsel and Company Secretary, to cover some of the administrative items for today's meetings. And after that, I'll address the meeting. Thanks, Craig.

Thank you, Ari, and good morning, everyone. I will now briefly explain how questions may be asked at today's meeting and the mechanism for voting on the resolutions, which will shortly be put to the meeting by the Chairman. To assist you, you can follow what I'm explaining on the slides, which will be explained on the screen. For online questions, to ask a written question, select the messaging icon. Type your question in the box towards the top of the page and press the Send button. Also, for online questions, to ask your question verbally, click the Request to Speak button. You'll be prompted to confirm your name and enter the topic of your question. Submit your details and select Join Queue to be connected. Shortly, the Chair will declare voting open on all items of business. At that time, the resolutions and voting options will appear on the screen. To cast your vote, simply select one of the options. Your vote is automatically recorded and there is no need to press the Submit or Enter button. You can change your vote up until the time the Chairman declares voting closed. The Chairman will give a warning before the poll is formally closed. Attendees in the room today wishing to ask a question can raise their hand. Before asking your question, if you are a shareholder, please state your name. If you are attending as a proxy for a shareholder, please state the name of the shareholder on whose behalf you are attending today's meeting. In relation to the key pads you were given upon your arrival and registration today, once voting opens, attendees in the room today will be presented with the list of resolutions on their voting keypad. Use the trackball to highlight the resolution you wish to vote on and press the green square to confirm. The resolution text will appear and to bring up the voting options, press the green square. Press 1 to vote for the item; 2 for against; and 3 for abstain. To move on to the next item, press the green square or to return to the full items, press the red triangle. Thank you. And I'll now hand you back to the Chairman of the meeting, Mr. Ari Mervis.

That's great. Thank you, Craig. I will now formally declare voting open on all items of business. That means you can vote or change your vote at any time from now during the meeting until I declare the poll closed. I will provide ample warning before I move to closing the voting. Note that the results of voting for all resolutions today will be submitted to the ASX shortly after the meeting. I will now turn to my remarks in relation to the FY '26 financial year. Today, I would like to reflect on the company's performance during FY '26, discuss the progress that has been made since transforming the company's operations acknowledge where your company has not delivered and outline the Board's priorities for the year ahead. FY '26 was a disappointing year. While the business has delivered on many of the important structural changes, those changes have not yet translated into the anticipated sales growth earnings performance and shareholder returns that you would expect. The Board understands along with management and shares that frustration and accepts that the company must demonstrate that significant changes made over the recent years will generate improved financial performance. Over the past 3 years, the Board of Management have overseen a substantial strategic reset of McPherson's. FY '26 represented the first full year operating under the new model and the structural and cost benefits of the transformation were delivered broadly in line with expectations. The company achieved meaningful cost savings, broadened pharmacy outlet distribution and established a scalable and variable cost operating platform for the future. However, the transition proved more disruptive than anticipated. Ranging changes, product availability issues and execution challenges, including within parts of the pharmacy channel, adversely affected sales performance. As a result, FY '26 was not the step forward in financial performance that we anticipated delivering. Revenue from continuing operations was $118.3 million. Underlying EBITDA was $4.3 million and the company recorded a statutory net loss after tax of $20.3 million. The result was clearly unsatisfactory. The company ended FY '26 with net cash of $4.5 million compared to $8.8 million a year earlier and with our debt facilities undrawn. The $4.3 million reduction in cash was a result of a deliberate decision to invest an incremental $5.5 million in working capital, predominantly inventory to restore the availability of our core products after periods where we could not fully meet customer demand. Excluding investment, the business added approximately $1.2 million to its net cash over the year after funding capital expenditure lease payments and the share buyback. We expect this inventory investment to unwind progressively through FY '27 as stock levels normalize, releasing cash back to the balance sheet. Together with its undrawn facilities, the Board is confident the company is appropriately funded to execute on its strategy. The Board also commenced an on-market share buyback reflects our confidence in the long-term value of the company. While we believe our shares are materially undervalued, the Board has deliberately taken a measured approach. Our objective is not to maximize buyback activity at the expense of balance sheet strength. We remain focused on preserving financial flexibility while the business works to improve operating performance. Given the company's retained loss position in FY '26 financial performance, the Board determined not to pay a dividend. During FY '26, we welcomed John Batistich, as an independent Nonexecutive Director and have already benefited from his extensive experience across consumer brands, marketing and digital strategy. As I mentioned earlier, John is standing for election today, and I trust that shareholders will support his election at today's meeting. During the year, we also farewelled Jane McKellar from the Board and as I mentioned earlier, we will also shortly farewell Alison Cook as a Non-Executive Director of McPherson's. On behalf of the Board and myself personally, I would like to thank Alison for her significant contribution as a Director of McPherson's Board and for her unwavering commitment and professionalism. I mentioned earlier that Brett will step down as CEO and MD of McPherson's. Brett joined McPherson's at a time when substantial change was required and was specifically charged with addressing the required change. Over the past few years, he has led a significant transformation of the business. The Board sincerely appreciates Brett's commitment, professionalism and willingness to lead through a period of such change. We also appreciate his support in ensuring an orderly transition. While Brett remains in the role, this will be his last AGM. And so onn behalf of the Board, Brett, I want to thank you for your contribution to McPherson's and to wish you well for the future. The major structural changes associated with the business model transformation have now been implemented. The next challenge is execution. Our focus is straightforward: restoring growth, improving earnings, maintaining a disciplined approach to costs and rebuilding shareholder confidence. The Board's priorities for the coming year are clear. First, we need to oversee the appointment of a new CEO to lead McPherson's through its next phase and drive improved operating and financial performance. Second, continuing the Board's renewal program including the appointment of a new NED following Alison's retirement. And third, supporting management as it executes the next phase of the company's strategy to work -- to restore growth and earnings momentum. Above all, your Board remains focused on execution, accountability and improving outcomes for shareholders. On behalf -- in closing, on behalf of the Board, I would like to thank our employees, our customers, our suppliers, our shareholders and our business partners for their ongoing support throughout this challenging year. I will now hand over to Brett.

Thank you, Ari, and good morning, everyone. Nice to see you here in our new offices in Kent Street. As shareholders will be aware, the company has recently announced that I've decided to step down as Chief Executive Officer following more than 3 years in the role. This will, therefore, be my final AGM as CEO of McPherson's. I'd like to use today's address not only to discuss FY '26, but also to reflect on what has been achieved over the past 3 years and the work that still lies ahead. When I joined McPherson's just over 3 years ago, the business faced significant structural challenges. We embarked on a program to simplify the company, reshape the route-to-market model, focus the portfolio and invest in the capabilities required to support growth. Over that period, the business has been fundamentally reshaped. McPherson's today is a simpler, more focused and more capable organization than the one that I joined 3 years ago. Over those years, we've divested Multix to address the company's fixed cost base, simplify the operating model and focus the brand portfolio to be a leader in premium health and beauty products. We also identified the key and much-loved brands where we needed to place our focus. We've implemented an entirely new route-to-market model. And under that model, we have expanded pharmacy distribution by almost 1,000 outlets to more than 4,500 pharmacies nationally. We've streamlined our portfolio from more than 1,200 SKUs to approximately 600. We've simplified our manufacturing footprint, reducing suppliers for Dr. LeWinn's and Fusion Health from 28 suppliers to 4, and we've dramatically improved customer service levels with DIFOT, which is delivered in full on time, increasing from less than 60% when I joined to 98% today. We've also materially reduced the company's cost base. And a practical example is where we are today. 3 years ago, McPherson's operated from more than 16,000 square meters of warehouse and office space at Kingsgrove at an annual rental cost of approximately $2.5 million. From FY '28, with our move to here at 383 Kent Street, our annual rent cost will be approximately $900,000. Exiting the warehouse also allowed us to reshape the organization to better align with the needs of the business and our new operating model. Today, we operate with a significantly leaner structure than when I joined while continuing to invest in key commercial, marketing and digital capabilities. Since FY '23, employee costs have reduced from $38.2 million to $24.9 million, and selling, general and administration costs have reduced from $15.8 million to $12.4 million. We've refinanced our debt facility, so we now have a fit-for-purpose, right-sized facility at a lower cost to support the business going forward. And we also finished FY '26 with net cash. Those changes required significant effort across every part of the organization. And whilst the financial benefits of those changes have not yet been reflected in shareholder returns, I believe they have established a substantially stronger platform from which the company can now grow. FY '26 was the first full year operating under our new pharmacy wholesaler and third-party logistics model. The cost benefits of that model were delivered broadly in line with our expectations. The business delivered $2.8 million of incremental EBITDA benefits and $5.6 million of incremental EBIT benefits from the new model that were included in the FY '26 result. However, execution challenges during the transition, including ranging outcomes across parts of the pharmacy channel promotional effectiveness and product availability issues in several key brands impacted revenue and earnings performance. As a result, we did not convert the overall -- the operational improvements that have been achieved into the financial outcomes we expected. And we take responsibility for that outcome. Having said that, many of those issues have now been addressed, and the business enters FY '27 from a more stable operating platform than was the case 12 months ago. Our brands remain the foundation of our business. Swisspers delivered a solid performance during the year and maintained its leading position in its category. Manicare continued to hold leadership positions across several categories despite challenging market conditions. Lady Jayne, Dr. LeWinn's and Fusion experienced greater disruption during the transition period, particularly in pharmacy. While those outcomes are disappointing, substantial work has been taken -- undertaken during the year to strengthen the long-term position of all of those brands. This included investment in innovation, increased digital capabilities, direct-to-consumer platforms and a refreshed influencer marketing model. These investments will only be considered successful if they ultimately translate into stronger sales and earnings performance, and that remains our task ahead. I'd like to briefly update shareholders on trading for FY '27. First quarter sales were approximately 11% below the prior corresponding period which included increased stock orders by various wholesalers throughout the first quarter of 2026 in connection with the route-to-market transition. These increased stock orders repeated in December in 2025, and so will be reflected in the comparison periods for the first half of the 2027 result. Notwithstanding current trading, we believe underlying EBITDA growth for FY '27 remains achievable through deploying our new commercial model and with a continued focus on brands, customers and cost discipline. As in prior years, management expects the full year result to be weighted to the second half of 2027. As Ari outlined earlier, the major structural changes associated with the transformation have now been implemented. Our priority moving forward is converting those changes into sustained revenue growth and earnings improvement. That means improving ranging outcomes, strengthening customer relationships, accelerating innovation, building consumer demand and translating the capabilities that we brought into the business into commercial results. In closing, one of the things I've learned throughout my career is that businesses requires different leadership at different stages of their development. Looking back, I'm very proud of the work we've done to reshape McPherson's over the past 3 years. While the trading results remain disappointing, I continue to believe that the strategic decisions made over the past 3 years were the right decisions for the business. Shareholders will ultimately judge those decisions by the company's performance and rightly so. I believe now is the right time for a new leader to lead the next chapter of McPherson's development and convert those foundations into improved commercial outcomes. Leadership transitions are a normal part of how organizations evolve, and I remain fully committed to supporting Board and management through that process. And so before I conclude, I'd like to thank a few people who've made the last 3 years possible and also enjoyable. Firstly, our employees. Throughout a period of significant change, our people continue to support one another, serve our customers and keep moving the business forward, and I'm enormously grateful and proud of their commitment. Secondly, I'd also like to thank the Board for its support, guidance and challenge throughout my tenure. And finally, I'd like to thank our shareholders, whilst the financial outcomes have not yet reflected the full benefits of the transformation, I firmly believe that McPherson's is a stronger business today than it was 3 years ago. and is better positioned to capture the opportunities ahead. It has been a privilege leading McPherson's. I thank you for your support, and I wish the company every success for the future.

Thanks very much, Brett. Before we move on to the first item, formal item of business, just want to check if there are any questions of clarification relating to either my speech or Brett's speech. There will be opportunities later in the meeting for further questions. Any questions online?

No questions, Chairman.

Super. Thank you. Okay. Now turning to the formal business of today's meeting. The first item of business is the consideration of the financial statements and reports for the year ended 30 June 2026. These statements and reports were finalized and given to the ASX on the 27th of August 2026, and they are also contained in the company's 2026 annual report given to shareholders and the ASX on the 28th of September. Neither the Corporations Act nor McPherson's constitution require shareholders to vote on or to formally approve or adopt the financial reports. However, shareholders can, of course, ask questions regarding the financial reports of the company. As I mentioned earlier, Dave Ronald is here representing PwC, the company's external auditor, and he will be available to answer any questions shareholders may have in respect to the auditor's report, the conduct of the audit, the accounting policies adopted by the company or the independence of the auditor. I will now pause for a moment and see if there are any questions relating to the financial reports.

Yes, I'll bring you a mic.

Yes. The question is -- my name is [ Wolfgang Schwartz ], shareholder. To what extent has the Iran War that Trump started back in February affected your supply lines? Looking at the financial report only Swisspers was the only one that made some sort profit. All the other ones are down. Was any of this impacted by this conflict?

Thank you. I'm sorry, I didn't get your name, although it was addressed.

Wolfgang Schwartz.

Thank you very much. Thank you for that question. So really, I didn't hear the question -- it's relating to the impact of the conflict in the Middle East. I think what we've seen as a consequence of that has been a surcharge that's been levied on many of our different transport companies that provide us with transport for both freight inbound of products that have been imported and our finished goods as well as domestic freight. And in many instances, it's a temporary levy that's been put on top of the pricing. Some instances, we obviously try and recover it through passing it on, but then that is a knock-on consequence of an inflationary pressure on to our consumers and on to the shoppers. So it's very hard to dimension exactly what the impact is. We can see the fuel price levy and what that financial impact is, but the holistic impact is very challenging to try and unscramble. Craig, any...

No questions online, Chairman.

Thank you. I will now turn to today's resolutions that do require a shareholder vote. All resolutions presented are contained in a detailed Notice of Meeting sent to shareholders on the 28th of September. As I stated earlier, I will take the Notice of Meeting, without Resolution 3, as read. Resolution 1 is the election of John Batistich as a Non-Executive Director of the company. The first resolution relates to his election. And John, as a Non-Executive Director and current member of the Audit and Risk Committee and the Remuneration, People and Culture Committee and the Nominations Committee, was appointed as an NED on the 17th of November 2025. And in accordance with the Rule 45(d) of the Company's Constitution and ASX Listing Rule 14.4 being eligible, offers himself for election. Details of John's skills, experience and background are contained in the Notice of Meeting. Your directors unanimously recommend, with John abstaining, that shareholders vote in favor of Resolution 1. As Chairman of the meeting for this resolution, I intend to vote any undirected proxies that I hold in favor of Resolution 1. Details of the proxy votes received on resolution prior to the meeting are now shown on the screen. Are there any questions relating to Resolution 1?

It would be good just maybe for John to briefly outline what sort of experience he brings to -- he has in this field and what sort of experience and qualification it brings to be suitable for the job.

Thank you. I'm more than happy to introduce John. You will notice in the Notice of Meeting and in my overview that there is John's resume, which does detail it. So maybe just a brief update from John in terms of that.

Thank you, Wolfgang. My role as a new NED is to ensure that where strategy, policy, risk management and governance of the company is sound, and with all of my colleagues that we are focused on shareholder long-term value. My experiences are largely in consumer goods with companies like Lion Nathan, where I had time and insights in research and marketing; Kimberly Clark, which worked across Kleenex and brands like Huggies. So very much focused on similar channels, pharmacy and grocery. Working with Wrigley, where I was a Managing Director, which again had ranges of products in grocery, route trade, pharmacy and the like. I've also had experiences at PepsiCo as a Chief Marketing Officer; and then at Westfield working across a range of retail and digital experiences. I hold a Bachelor of Business, Masters in Management, a Digital Qualification from ADMA, and I'm a graduate of Australian Institute of Company Directors. And with my colleagues, I focus on supporting our leadership team, holding them also in equal measure and accountability and improving our performance in the interest of all stakeholders, namely our shareholders.