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Mercer Group returns to profit with a $227k first-half result

Tuesday 26th February 2019

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Mercer Group has returned to profitability with a skinny $227,000 net result with revenue rising 10 percent to $18 million.

The stainless steel products manufacturer posted a $365,000 net loss in the same six months a year earlier and a $7.9 million net loss for the year ended June.

Earnings before interest, tax, depreciation and amortisation rose to $596,000 in the six months ended December from $96,000 in the year-earlier six months.

Still, strong cash flow from its H&C automated solutions business led to a positive operating cash inflow of $5.9 million for the six months, a turnaround from a $2 million cash outflow previously.

“While the above highlights are a pleasing result, given the performance in recent years, the focus remains on building a sustainable business through actively diversifying our revenue streams by product, end market and geography,” the company says in a statement.

The turnaround was largely the result of H&C returning to profitability, generating $157,000 of ebitda in the latest six months, “a reasonable result based on the reduced revenue,” it says.

“The profitability margins have room for improvement, particularly at H&C, and will be a focus going forward.”

Mercer says the strong cash flow reflects large upfront deposits for stronger workflows and, “while this is likely to unwind in the second half, it allowed for a $1.8 million temporary repayment in debt for the half year, reducing our interest costs. These working capital swings are a natural ebb and flow of our business.”

Debt at Dec. 31 was $4.5 million, down from $8.5 million a year earlier.

On Dec. 7, H&C announced the purchase of the chilling and freezing business of Milmeq and Mercer says it expects the transaction will settle on Feb. 28.

The Milmeq business “will provide H&C offices in Auckland and Brisbane and an additional 20 staff,” and the business has synergies with the existing H&C operations and will allow it to offer existing customers a broader offering, the company says.

Milmeq has already secured a $6 million contract for a cheese cooling tunnel in the United States and expects to secure another tunnel order within the next month.

It says it continues to progress its S-Clave sterilisation product through the commercialisation process, which it says has been slower than it would like “but is a reflection on the process that is required to launch a product into the medical sector.

The Stainless business had “adequate” revenue of $8.9 million and ebitda of $656,000 with its performance driven by investment in the dairy sector “while the business did not win as much work in the wine sector as last year, based on a highly competitive pricing environment.”

It says the cyclical nature of the stainless sector “continues to be a challenge and, despite a continued effort to diversify, Mercer Stainless is still largely reliant on the dairy sector.”

The medium-term outlook remains good, it says.

Mercer says it is making progress on settling its dispute with Fonterra over the September 2016 collapse of a milk silo it build at Fonterra’s Edendale plant and says it expects to update the market within the next two weeks.

However, in August last year, Mercer said it was hoping for a conclusion within three months.

In November 2017, Mercer estimated the cost of the collapse to Fonterra was $20 million.

The company says George Rolleston, the son of 52.6 percent shareholder Humphry Rolleston, is joining its board.

Mercer shares are unchanged at 22 cents and have dropped 44 percent in the last 12 months.


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