McPherson : Appendix 4D - Half Year Financials

McPherson's Limited

ABN: 98 004 068 419

Half year ended 31 December 2021

Results for announcement to the market

				$'000
Sales revenue	up	6.9%	to	108,804
Profit before tax excluding material items	down	4.6%	to	6,655
Profit after tax excluding material items	down	0.5%	to	4,443
Loss before tax1	down	307.0%	to	(2,977)
Loss after tax1	down	304.1%	to	(2,144)
Loss after tax attributable to members	down	304.1%	to	(2,144)

1Including material items in the current financial year results (refer to Note 2).

Dividends	Amount	Franked amount
	per security	per security
Interim ordinary dividend	3.0¢		3.0¢
Previous corresponding period - ordinary dividend	3.5¢		3.5¢
Other Information	December 2021	June 2021
	$		$
Net tangible asset per ordinary share	0.17		0.19
Payment date for interim ordinary dividend			18 March 2022
Record date for determining entitlements to interim ordinary dividend		1 March 2022

Appendix 4D - Page 1

Appendix 4D

McPherson's Limited

Directors' Report

For the half year ended 31 December 2021

The Board of Directors presents the following report on the consolidated entity (referred to hereafter as the Group) consisting of McPherson's Limited and the entities it controlled at the end of, or during, the half year ended 31 December 2021.

1. Directors
   The following persons were Directors of McPherson's Limited during or since the half year period to the date of this report:

A. Mervis		Appointed as Chairman on 21 July 2021
	 Appointed as member of the Audit Committee and the People and Culture
		Committee on 21 February 2022
G.A. Cubbin		Resigned as Chairman on 21 July 2021
	 Resigned as a Non-Executive Director on 21 February 2022
G.W. Peck		Chief Executive Officer and Managing Director
J.M. McKellar		Chair of the People and Culture Committee
		Resigned as member of the Audit, Risk Management and Compliance
		Committee on 21 February 2022
	 Appointed as member of the Risk and Compliance Committee on 21 February
		2022
A.J. Cook		Appointed as member and Chair of Audit, Risk Management and Compliance
		Committee on 19 January 2021
	 Resigned as Chair of the Audit, Risk Management and Compliance Committee
		on 21 February 2022
	 Appointed as Chair of the Risk and Compliance Committee on 21 February
		2022
G.R. Pearce
H. Thornton		Appointed as Non-Executive Director on 20 December 2021
		Appointed as Chair of the Audit Committee and member of the Risk and
		Compliance Committee on 21 February 2022

1. Principal activities
   McPherson's, established in 1860, is a leading supplier of Health, Wellness and Beauty products with operations in Australia, New Zealand and Asia. McPherson's markets and distributes beauty care, hair care, skin care, vitamins, supplements and personal care items such as facial wipes, cotton pads and foot comfort products, as well as a range of kitchen essentials such as baking paper, cling wrap and aluminium foil.
   McPherson's revenue is primarily derived from its diversified portfolio of owned market-leading brands, including Dr. LeWinn's, A'kin, Manicare, Lady Jayne, Swisspers, Multix, Fusion Health, Oriental Botanicals, Moosehead and Maseur. McPherson's also manages a small number of brands for agency partners.
   Manufacturing is outsourced to various suppliers, predominantly in Asia and Australia. McPherson's maintains a strong presence in Hong Kong and mainland China, focused on product sourcing and quality assurance.
2. Review of operations
   Total sales revenue of $108.8 million was 7% above 1H21 ($101.7 million). Domestic organic sales growth of 11% was achieved, driven by double digit growth in Manicare, Lady Jayne and Swisspers, despite the challenges presented by COVID-19, which illustrates the growth potential of the business.
   Underlying profit before tax for the half year was $6.7 million (1H21: $7.0 million), excluding material items disclosed in note 2, within the guidance range provided in November 2021.
   Statutory loss before tax, inclusive of material items, for the half year was ($3.0) million (1H21 statutory profit before tax: $1.4 million).

Appendix 4D - Page 2

Appendix 4D

McPherson's Limited

Directors' Report (continued)

For the half year ended 31 December 2021

1. Review of operations (continued)
   1H22 Commercial Business Unit (CBU) Performance
   Australian and New Zealand - Beauty and Household Consumables (ANZ CBU)

Underlying results	1H22	1H21	Change	Change
	($m)	($m)	($m)	(%)
Sales revenue	96.7	92.6	4.1	4%
Underlying EBIT	10.8	11.3	(0.5)	(4%)

Over 1H22, the ANZ CBU achieved market share growth in 4 of the 6 owned brand product categories in which it operates. Following substantial growth achieved in FY21, and under renewed leadership, the CBU generated further growth in its essential beauty category in 1H22 where sales grew 18% to $38.3 million, driven by 25% growth in Swisspers, 19% growth in Manicare and 10% growth in sales of Lady Jayne products. New product innovations and a shift toward home-based beauty solutions continue to result in improved demand for the Company's core essential beauty products.

Domestic sales of Dr. LeWinn's and A'kin products grew 3% and 17% respectively, with A'kin benefiting from incremental ranging in the grocery channel in comparison with 1H21.These growth rates were achieved despite the recent COVID-19 enforced lockdowns, weakening demand in the broader cosmeceutical and natural skincare categories, demonstrating McPherson's market outperformance. Further, this growth was achieved in the context of the absence of international students and tourists which has led to reduced daigou demand in these categories. The Group's domestic sales of skincare, haircare and bodycare brands increased 6% to $12.9 million, despite broader category declines.

McPherson's household essentials category is dominated by Multix, which is the market leader in many sub-categories of bags, wraps and foils in the grocery channel. Multix sales increased by 5% in 1H22 to $27.9 million, with strong demand for Multix Alfoil products, garbage bags and baking papers.

Margins in the ANZ CBU were supported by the mix swing to essential beauty. However, overall contribution margin was adversely impacted by higher commodity and sea freight costs over 1H22, particularly impacting the Multix and Swisspers brands. Total operating expenses increased 4%, primarily due to increases in carton freight and advertising expenses. Consequently, ANZ underlying EBIT declined 4% to $10.8m.

In response to the significant cost inflation noted above, material selling price increases have been agreed with key retailers in the household essentials category with implementation commencing this month.

Health
Underlying results	1H22	1H21	Change	Change
	($m)	($m)	($m)	(%)
Sales revenue	8.4	1.3	7.1	NCM1
Underlying EBIT	1.3	0.2	1.1	NCM

The newly formed Health CBU comprises the premium Fusion Health and Oriental Botanicals brands. The 1H22 performance for Health was impacted by difficult trading conditions on the eastern seaboard with many health stores and pharmacies experiencing reduced foot traffic during COVID-19 lockdowns, particularly in Q1. Additionally, some raw material shortages and supply chain instability impacted core product inventory positions.

Contribution and EBIT margins were, however, in-line with expectations for 1H22, representing a strong performance given the difficult circumstances.

1 NCM - Not considered meaningful due to 1H21 results being applicable to 1 month of trading due to acquisition on 30 November 2020.

Appendix 4D - Page 3

Appendix 4D

McPherson's Limited

Directors' Report (continued)

For the half year ended 31 December 2021

1. Review of operations (continued)

International
Underlying results	1H22	1H21	Change	Change
	($m)	($m)	($m)	(%)
Sales revenue	3.7	7.8	(4.1)	(53%)
Underlying LBIT	(1.1)	(0.5)	(0.6)	(120%)

Consistent with the Company's ASX release on 1 November 2021, sales of Dr. LeWinn's product to China of $1.0 million in 1H22 were $3.4 million below 1H21 ($4.4 million) as cross-bordere-commerce distribution into China remains constrained by excess inventory and reduced consumer demand.

1H22 sales into Singapore and surrounding countries declined to $1.9 million (1H21: $2.2 million) as significantly reduced in-bound tourism adversely impacted retail trade.

The resulting decline in 1H22 contribution from the International CBU was partially offset by a significant reduction in expenditure on advertising and promotion.

On 1 November 2021, the Board announced a prudent, one-off provision in the range of $8 million to $10 million in relation to excess Dr. LeWinn's inventory (and associated costs) that was acquired in 2019 and 2020 specifically to satisfy anticipated demand from China. A detailed review has subsequently been undertaken with a material one-off provision of $9.4 million reflected in the 1H22 financial statements.

Cash flow and balance sheet

The 1H22 underlying cash conversion rate was seasonally low at 48% (1H21: 67%), given planned inventory increases ahead of Chinese New Year shutdowns and seasonally high Q2 sales. Despite this, net debt, excluding lease liabilities, remains low at $8.8 million and the Company's gearing ratio (net bank debt excluding lease liabilities / total funds employed) was 7% at 31 December 2021 (31 December 2020: 3%).

The cash conversion rate is forecast to improve significantly in 2H22 in-line with seasonal trends and ongoing pro-active management, leading to further reduction in net bank debt.

Operational Review update

The Operational Review undertaken in 2H21 to capitalise on opportunities in the Health, Wellness and Beauty category and deliver shareholder value, focused on four key strategic pillars:

• Continued focus on core owned brands and key domestic channels
• Establish health & wellness as a new growth platform
• Expand international footprint
• Recalibrate cost base

The following actions have been taken to progress these outcomes during 1H22.

1. Operating model for Dr. LeWinn's in Greater China

Sales of Dr. LeWinn's product to China were significantly below expectations in 1H22, with cross- border e-commerce (CBEC) distribution into China likely to remain challenging over at least the next 12 months. With the unanticipated consequences created by the pandemic, the originally planned staged JV arrangements with Access Brands Management (ABM) have not been completed. ABM has been advised of McPherson's intention, to address the broader CBEC channel and that this will involve engaging with alternate providers in both distribution and marketing support.

Appendix 4D - Page 4

Appendix 4D

McPherson's Limited

Directors' Report (continued)

For the half year ended 31 December 2021

1. Review of operations (continued)
2. 1. Completion of CBU Management and Reporting structure
      The Company has embedded a new management and reporting structure to support and drive individual CBU responsibility for revenue and profit targets, marketing, customer relationships and commercial delivery.
   2. Cost reduction initiatives
      Management is well progressed in realising annualised cost reductions of at least $3 million. In addition to the leaner Senior Leadership Team, these cost reductions comprise the exit from loss making joint ventures and reduced warehousing costs.
3. Dividends
   The Directors have recommended that an interim ordinary dividend (fully franked) of 3.0 cents per share to be paid on 18 March 2022. These dividends were declared subsequent to the end of the half year period and therefore have not been recognised as a liability at 31 December 2021. Given the Group's low level of bank debt ($8.8 million at 31 December 2021), the dividend reinvestment plan remains suspended.
4. Events subsequent to balance date
   There has not arisen in the interval between the end of the half year and the date of this report, any item, transaction or event, of a material and unusual nature likely to significantly affect the operations of the Group, the results of those operations, or the state of affairs of the Group, in future financial years.
5. Rounding
   The Group is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191 and, in accordance with that instrument, all financial information in this Directors'
   Report and the Financial Report have been rounded to the nearest thousand dollars unless otherwise stated.
6. Auditor's independence declaration
   A copy of the auditor's independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 6.
   Signed in accordance with a resolution of the Directors:

A. Mervis	G. Peck
Chairman	Managing Director
23 February 2022	23 February 2022

Appendix 4D - Page 5