McPherson : Appendix 4D - 1H20 Results Release

McPherson's Limited

ABN: 98 004 068 419

Half Year ended 31 December 2019

Results for Announcement to the Market

							$'000
Revenue	down		0.4%		to		106,039
Profit before tax	up		9.2%		to		8,481
Profit after tax	up		3.4%		to		5,725
Profit after tax attributable to members	up		3.4%		to		5,725
	Amount			Franked amount
Dividends	per security			per security
Interim ordinary dividend	4.0¢					4.0¢
Previous corresponding period - ordinary dividend	4.0¢					4.0¢
Previous corresponding period - special dividend	2.0¢					2.0¢
	December 2019			June 2019
Other Information	$					$
Net tangible asset per ordinary share	0.12					0.15
Payment date for interim ordinary dividend				19 March 2020
Record date for determining entitlements to interim ordinary dividend			2 March 2020

Appendix 4D - Page 1

Appendix 4D

McPherson's Limited

Directors' Report

For the half year ended 31 December 2019

The Board of Directors present 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 2019.

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

G.A. Cubbin (Chairman)

L. McAllister (Managing Director)

G. Peck (Chairman of the Audit, Risk Management and Compliance Committee)

J.M. McKellar (Chairman of the Nomination and Remuneration Committee)

G.R. Pearce

A.J. Mew

1. Principal activities
   McPherson's, established in 1860, is a leading supplier of Health, Wellness and Beauty products in Australasia and increasingly China, with operations in Australia, New Zealand and Asia. McPherson's markets and distributes beauty care, hair care, skin care 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 manages some significant brands for agency partners and via joint venture arrangements, however, the majority of revenue is derived from the company's diversified portfolio of owned market- leading brands, including Dr. LeWinn's, A'kin, Manicare, Lady Jayne, Swisspers, Multix, Moosehead and
   Maseur.
   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
   The consolidated $8.5 million profit before tax was 9.2% above the prior comparative period. No significant non-recurring items were recognised for the half year ended 31 December 2019 (1H19: nil).
   The consolidated profit before tax, excluding the distribution of Trilogy and Karen Murrell from the previous corresponding period, increased by 31% to $8.5 million from $6.5 million. The distribution arrangements for Trilogy and Karen Murrell, which ceased effect from 30 June 2019, generated $6.3 million in sales revenue and $1.3 million in profit before tax in 1H19.
   Divisional performance
   Total sales revenue from continuing operations of $106.0 million was 0.4% below the prior comparative period (1H19: $106.5 million), and increased by 5.5% excluding Trilogy and Karen Murrell distribution revenue from the previous corresponding period.
   This growth in sales revenue, excluding Trilogy and Karen Murrell distribution revenue, was largely due to significant growth from McPherson's key owned brand Dr. LeWinn's in both domestic and export markets, as well as revenue gains in the Manicare brand. This growth in sales revenue was offset by the grocery range rationalisation of Multix, as well as a decrease in sales revenue from Swisspers and Lady Jayne, which were impacted by increased competition from Private Label products.

Appendix 4D - Page 2

Appendix 4D

McPherson's Limited

Directors' Report (continued)

For the half year ended 31 December 2019

1. Review of operations (continued)
   Cash flow, balance sheet and foreign exchange hedging
   Net debt, excluding lease liabilities, remained stable at $19.6 million (1H19: $19.5 million), despite key investments made over the last 6 months in Aware ($3.0 million), our joint ventures ($1.8 million) and display stands ($1.0 million).
   The Company's gearing ratio (net debt / total funds employed) has slightly increased from 17.1% to 17.6%, excluding lease liabilities, over the 6 months to 31 December 2019.
   The Company's foreign exchange hedging policy remains unchanged, with estimated USD requirements hedged 12 months forward on a rolling basis using options and foreign exchange contracts.
2. Dividends
   The Directors have recommended that an interim ordinary dividend (fully franked) of 4.0 cents per share to be paid on 19 March 2020. 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 2019.
3. 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.
4. 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.
5. 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 4.

Signed in accordance with a resolution of the Directors:

G. A. Cubbin	L. McAllister
Chairman	Managing Director
19 February 2020	19 February 2020

Appendix 4D - Page 3

Appendix 4D

McPherson's Limited

Consolidated Statement of Comprehensive Income

For the half year ended 31 December 2019

		Half Year	Half Year
	Note	December	December
	2019	2018
		$'000	$'000
Revenue
Sales revenue		106,039	106,485
Interest		203	13
Total revenue		106,242	106,498
Expenses
Materials and consumables		(55,160)	(58,136)
Employee costs		(16,893)	(15,486)
Advertising and promotions		(11,388)	(11,613)
Cartage and freight		(3,121)	(3,738)
Third party warehousing		(1,136)	(1,135)
Rental expenses		(243)	(2,150)
Depreciation		(2,192)	(701)
Amortisation		(332)	(310)
Other expenses		(5,677)	(5,017)
Borrowing costs		(680)	(446)
Share of net loss of joint ventures accounted for		(939)	-
using the equity method
Profit before income tax expense		8,481	7,766
Income tax expense	5	(2,756)	(2,230)
Profit for the half year after tax		5,725	5,536

The above consolidated statement of comprehensive income should be read in conjunction with the following notes.

Appendix 4D - Page 5

Appendix 4D

McPherson's Limited

Consolidated Statement of Comprehensive Income (continued)

For the half year ended 31 December 2019

		Half Year	Half Year
	Note	December	December
	2019	2018
		$'000	$'000
Profit for the half year after tax		5,725	5,536
Other comprehensive income
Items that may be reclassified to profit or loss
Changes in fair value of cash flow hedges		(1,087)	649
Exchange differences on translation of foreign operations		117	233
Income tax benefit / (expense) relating to these items		312	(207)
Other comprehensive income for the half year		(658)	675
Total comprehensive income for the half year		5,067	6,211

		Cents	Cents
Basic earnings per share	9	5.4	5.3
Diluted earnings per share	9	5.4	5.3

The above consolidated statement of comprehensive income should be read in conjunction with the following notes.

Appendix 4D - Page 6

Appendix 4D

McPherson's Limited

Consolidated Balance Sheet

As at 31 December 2019

		31 December	30 June
		2019	2019
	Note	$'000	$'000
Current assets
Cash and cash equivalents		4,820	10,472
Trade and other receivables		40,415	31,877
Inventories		40,160	36,688
Derivative financial instruments	2	-	797
Financial asset at fair value through profit or loss	2	-	2,934
Total current assets		85,395	82,768
Non-current assets
Financial asset at fair value through	2	6,000	-
other comprehensive income
Property, plant and equipment		6,129	5,930
Right-of-use assets		6,062	-
Intangible assets	6	73,679	73,973
Investment in joint ventures	10	2,565	716
Loan receivable from joint ventures	10	2,697	1,570
Deferred tax assets		57	86
Total non-current assets		97,189	82,275
Total assets		182,584	165,043
Current liabilities
Trade and other payables		37,466	32,219
Borrowings	7	28,748	1,667
Provisions		5,405	6,098
Derivative financial instruments		524	234
Current tax liabilities		1,483	2,506
Total current liabilities		73,626	42,724
Non-current liabilities
Provisions		783	709
Borrowings	7	5,658	16,269
Deferred tax liabilities		7,158	8,813
Contingent consideration	10	1,996	-
Total non-current liabilities		15,595	25,791
Total liabilities		89,221	68,515
Net assets		93,363	96,528
Equity
Contributed equity	8	158,810	157,751
Reserves		4,173	4,674
Accumulated losses		(69,620)	(65,897)
Total equity		93,363	96,528

The above consolidated balance sheet should be read in conjunction with the following notes.

Appendix 4D - Page 7

Appendix 4D

McPherson's Limited

Consolidated Statement of Changes in Equity

For the half year ended 31 December 2019

	Contributed		Accumulated	Total
	equity	Reserves	losses	equity
	$'000	$'000	$'000	$'000
Balance at 30 June 2019	157,751	4,674	(65,897)	96,528
Adoption of new AASB 16 Leases	-	-	(3,061)	(3,061)
Restated balance at 1 July 2019	157,751	4,674	(68,958)	93,467
Profit for the half year	-	-	5,725	5,725
Other comprehensive income	-	(658)	-	(658)
Total comprehensive income	-	(658)	5,725	5,067
Transactions with shareholders
Shares issued, net of transaction costs and tax	1,059	-	-	1,059
Dividends provided for or paid	-	-	(6,387)	(6,387)
Share-based payment transactions with employees	-	157	-	157
Total transactions with shareholders	1,059	157	(6,387)	(5,171)
Balance at 31 December 2019	158,810	4,173	(69,620)	93,363

The above consolidated statement of changes in equity should be read in conjunction with the following notes.

Appendix 4D - Page 8

Appendix 4D

McPherson's Limited

Consolidated Statement of Changes in Equity (continued)

For the half year ended 31 December 2019

	Contributed		Accumulated	Total
	equity	Reserves	losses	equity
	$'000	$'000	$'000	$'000
Balance at 1 July 2018	155,882	4,828	(70,690)	90,020
Profit for the half year	-	-	5,536	5,536
Other comprehensive income	-	675	-	675
Total comprehensive income	-	675	5,536	6,211
Transactions with shareholders
Shares issued, net of transaction costs and tax	557	-	-	557
Dividends provided for or paid	-	-	(2,619)	(2,619)
Share-based payment transactions with employees	-	105	-	105
Total transactions with shareholders	557	105	(2,619)	(1,957)
Balance at 31 December 2018	156,439	5,608	(67,773)	94,274

The above consolidated statement of changes in equity should be read in conjunction with the following notes.

Appendix 4D - Page 9

Appendix 4D

McPherson's Limited

Consolidated Statement of Cash Flows

For the half year ended 31 December 2019

	Note
Cash flows from operating activities
Receipts from customers inclusive of GST
Payments to suppliers and employees inclusive of GST
Interest received
Interest and borrowing costs paid
Income taxes paid
Net cash inflows / (outflows) from operating activities
Cash flows from investing activities
Payments for purchase of property, plant and equipment
Payments for purchase of intangible assets
Loan to joint ventures
Payments for financial assets at fair value
through other comprehensive income
Payments for acquisition of joint ventures	10
Net cash (outflows) from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Repayment of leases
Dividends paid
Net cash (outflows) / inflows from financing activities
Net (decrease) / increase in cash held
Cash at beginning of the half year
Effects of exchange rate changes on cash
Cash and cash equivalents at end of the half year

Half Year	Half Year
December	December
2019	2018
$'000	$'000
112,028	115,770
(106,690)	(113,721)
203	13

1. (446)
   (3,793) (3,959)

1,068 (2,343)

(1,292) (2,979)

(29)-

(1,281) (1,183)

(3,000)-

1. (1,158)

(6,133) (5,320)

38,736 34,659

(32,000) (26,000)

(1,785)-

(5,546) (2,062)

1. 6,597

(5,660) (1,066)

10,472 8,607

892

4,820 7,633

The above consolidated statement of cash flows should be read in conjunction with the following notes.

Appendix 4D - Page 10

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

1. Significant Accounting Policies

McPherson's Limited is a company domiciled in Australia. The consolidated interim financial report for the half year period ended 31 December 2019 comprises McPherson's Limited and the entities it controlled at the end of, or during, the half year period (the "Group").

1. Basis of Preparation
   This interim financial report has been prepared in accordance with Australian Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Act 2001. The Group is a for-profit entity for the purpose of preparing the interim financial statements. The report is presented in Australian dollars.
   This interim financial report does not include all the notes of the type normally included in an annual financial report. Accordingly, this interim report is to be read in conjunction with the Annual Report for the year ended 30 June 2019 and the announcements made by the Group during the interim reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the ASX Listing Rules.
   The accounting policies adopted are consistent with those of the previous financial year and the corresponding interim reporting period, except for the changes in accounting policies and the adoption of new and amended standards set out hereafter.
   The interim financial report has been prepared on the basis of historical cost, except where assets and liabilities are stated at their fair values in accordance with relevant accounting policies.
   New and amended standards adopted by the Group
   The group has applied the new AASB 16 Leases for the first time for the annual reporting period commencing 1 July 2019.
   The impact of the adoption of the new AASB 16 Leases and new accounting policies are disclosed in Note 1(b) below.

Appendix 4D - Page 11

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

1. Changes in accounting policies
   This section explains the impact of the adoption of AASB 16 Leases on the Group's financial statements and also discloses new accounting policies that have been applied from 1 July 2019.
   AASB 16 Leases
   The Group adopted the standard using the modified transition approach which means that the cumulative impact of adoption has been recognised in retained earnings as of 1 July 2019 and that the comparatives have not been restated, as follows.

	30 June 2019 as	Adoption of	1 July 2019
Consolidated Balance Sheet (extract)	originally	AASB 16	restated
presented	$'000	$'000
	$'000
Non-current assets
Right-of-use asset	-	6,667	6,667
Equity
Accumulated losses	65,897	3,061	68,958
Current liabilities
Lease liability	-	(3,910)	(3,910)
Non-current liabilities
Deferred tax liability	(8,813)	1,301	(7,512)
Lease liability	-	(7,119)	(7,119)

(i) Measurement of lease liabilities

The lease liabilities are measured as the present value of the remaining lease payments from the adoption of the new standard on 1 July 2019, using:

• Fixed payments, including CPI and market review increases, less any lease incentives receivable;
• Lease payments with reasonably certain extension options.

The lease payments are discounted using the Group's incremental borrowing rate, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of- use asset in a similar economic environment with similar terms, security and conditions.

The weighted average incremental borrowing rate applied to the lease liabilities on 1 July 2019 is 5.67% across the Group.

The lease liabilities will be decreased over time by rental payments, and give rise to interest expenses.

(ii) Measurement of right-of-use assets

The right-of-use assets are measured as if AASB 16 had always applied, as the present value of the lease payments, and are depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

(iii) Lease term

The Group determines the lease term as the non-cancellable period of a lease, together with the periods covered by an option to extend the lease if it is reasonably certain to exercise that option.

Appendix 4D - Page 12

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

1. Changes in accounting policies (continued)
   Financial Assets at Fair Value Through Other Comprehensive Income
   Financial assets at fair value through other comprehensive income are equity investments which are not held for trading, and for which the Group's management has elected to present fair value gains and losses in other comprehensive income. There is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognised in profit or loss as other income when the Group's right to receive payments is established. Impairment losses (and reversal of impairment losses) on equity investments measured at fair value through other comprehensive income are not reported separately from other changes in fair value.
2. Significant Accounting Estimates
   The preparation of a financial report in conformity with Australian Accounting Standards requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities. Actual results may differ from these estimates. The estimates and associated assumptions are reviewed on an ongoing basis.
   The areas involving a higher degree of judgement or complexity, where assumptions and estimates are significant are discussed below:
   Estimated recoverable amount of goodwill and indefinite lived brand names
   The Group tests goodwill and indefinite lived brand names annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. In calculating the recoverable amount of these assets, the use of assumptions is required. Refer to Note 6 for details of these assumptions.
   Provision for stock obsolescence
   Inventories are valued at the lower of cost and net realisable value. Estimates are required to be made in relation to the recoverable amount of inventory. These estimates are based on projected sales volumes and sell prices determined, and estimates of net realisable values for stock excess volumes.
3. Reclassification
   Certain comparative amounts have been reclassified to conform with the current period classification to better reflect the nature of the financial position of the Group.

Appendix 4D - Page 13

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

2. Fair Value Measurement of Financial Instruments

The Group holds the following financial instruments which are measured and recognised at fair value at 31 December 2019 and 30 June 2019 on a recurring basis:

		31 December 2019			30 June 2019
Recurring fair value measurements	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
$'000	$'000 $'000 $'000	$'000	$'000	$'000	$'000
Financial assets at fair value
Derivative financial instruments		-	-	-	-	-	797	-	797
Financial assets through OCI		-	6,000	-	6,000	-	-	-	-
Financial assets through profit and loss		-	-	-	-	-	-	2,934	2,934
Total financial assets at fair value		-	6,000	-	6,000	-	797	2,934	3,731
		31 December 2019			30 June 2019
Recurring fair value measurements	Level 1	Level 2	Level 3	Total	Level 1	Level 2	Level 3	Total
$'000	$'000 $'000 $'000	$'000	$'000	$'000	$'000
Financial liabilities at fair value
Derivative financial instruments		-	524	-	524	-	234	-	234
Total financial liabilities at fair value		-	524	-	524	-	234	-	234

AASB 13 Fair Value Measurement requires disclosure of fair value measurements by level using the following fair value measurement hierarchy:

Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period.

Level 2: The fair value of financial instruments that are not traded in an active market is determined using valuation techniques which maximise the use of observable market data and rely as little as possible on entity- specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in Level 2.

The fair value of the derivative financial instruments is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. The fair value of forward exchange and option contracts is determined using forward exchange market rates at the end of the reporting period.

The fair value of Financial Assets at Fair Value Through Other Comprehensive Income, being an investment in Aware Environmental Limited, is determined based on the share price of the latest capital raising of Aware Environmental Limited.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3.

As at 30 June 2019, the Group's Financial Assets at Fair Value through Profit or Loss, being the convertible notes with Aware Environmental Limited, were classified as Level 3 as the timing of cash flows, discount rates, conversion scenario, volatility and dividend yield were significant non-observable inputs. These convertible notes were converted into shares in Aware Environmental Limited on 11 October 2019, which are classified as Financial Assets through Other Comprehensive Income as at 31 December 2019.

Appendix 4D - Page 14

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

3. Segment Information

Operating segments are reported in a manner which is consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker has been identified as the Managing Director of McPherson's Limited.

The internal reports reviewed by the Managing Director, which are used to make strategic decisions, are separated into geographic segments and are considered on the basis of Australia, New Zealand and the rest of the world.

Segment revenues

Segment revenues are allocated based on the location in which the revenue originated. Sales between segment are eliminated on consolidation.

Revenues of approximately $17,213,000 (2019: $17,378,000) and $16,437,000 (2019: $16,933,000) were derived from two external customers. These revenues were attributable to the Australian operation.

Sales revenues derived from Access Brand Management (ABM), the Group's key China facing customer, are classified as Australian revenue as ABM is an Australian entity and products are physically supplied to ABM's Australian warehouse.

Appendix 4D - Page 15

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

3. Segment Information (continued)

Segment assets

Segment assets are allocated based on where the asset is located. Assets arising from transactions between segments are eliminated on consolidation.

				Inter-
			Rest of	segment
	Australia	New Zealand	the World	eliminations	Consolidated
	$'000	$'000	$'000	$'000	$'000
31 December 2019
Sales to external customers	97,599	4,955	3,485	-	106,039
Inter-segment sales	1,861	-	910	(2,771)	-
Total sales revenue	99,460	4,955	4,395	(2,771)	106,039
Other revenue / income (excluding interest)	-	-	-	-	-
Total segment revenue and other income (excluding interest)	99,460	4,955	4,395	(2,771)	106,039
EBITDA before significant items	11,416	(163)	432	-	11,685
Depreciation and amortisation expense	(2,157)	(144)	(223)	-	(2,524)
Segment result before significant items	9,259	(307)	209	-	9,161
Significant items before tax (excluding borrowing related costs)	-	-	-	-	-
Segment result including significant items before tax	9,259	(307)	209	-	9,161
Borrowing costs					(680)
Profit before income tax					8,481
Income tax expense					(2,756)
Profit after income tax					5,725
Segment assets	153,193	3,838	25,553	-	182, 584

Appendix 4D - Page 16

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

3. Segment Information (continued)
				Inter-
			Rest of	segment
	Australia	New Zealand	the World	eliminations	Consolidated
	$'000	$'000	$'000	$'000	$'000
31 December 2018
Sales to external customers	97,660	4,898	3,927	-	106,485
Inter-segment sales	1,429	-	1,153	(2,582)	-
Total sales revenue	99,089	4,898	5,080	(2,582)	106,485
Other revenue / income (excluding interest)	-	-	-	-	-
Total segment revenue and other income (excluding interest)	99,089	4,898	5,080	(2,582)	106,485
EBITDA before significant items	8,333	257	622	-	9,212
Depreciation and amortisation expense	(869)	(101)	(43)	-	(1,013)
Segment result before significant items	7,464	156	579	-	8,199
Significant items before tax (excluding borrowing related costs)	-	-	-	-	-
Segment result including significant items before tax	7,464	156	579	-	8,199
Net borrowing costs					(433)
Profit before income tax					7,766
Income tax expense					(2,230)
Profit after income tax					5,536
Segment assets	144,547	3,410	25,179	-	173,136

Appendix 4D - Page 17

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

4. Dividends

Details of dividends declared or paid during or subsequent to the half year ended 31 December 2019 are as follows:

Ordinary

Final 30 June 2019 dividend of 6.0 cents per fully paid share (2018: 2.5 cents per fully paid share) fully franked at 30%

Dividends not recognised at the end of the half year

Since the end of the half year, the Directors have declared a fully franked interim ordinary dividend of 4.0 cents per fully paid share (2019: 4.0 cents per fully paid share), and no special dividend (2019: 2.0 cents per fully paid share). The aggregate amount of the dividends to be paid on 19 March 2020 but not recognised as a liability at half year end is:

Half Year	Half Year
December	December
2019	2018
$'000	$'000
6,387	2,619

4,2746,308

Dividend Reinvestment Plan (DRP)

The Company's DRP will operate at a discount of 2.5% and will apply to the upcoming interim dividend. Shareholders on the register at the record date of 2 March 2020 will be eligible for the dividend. Shareholders wishing to participate in the DRP need to have elected to do so by no later than the trading day immediately following the record date, or by 3 March 2020. Shareholders that have previously elected to participate in the DRP will continue to do so on the same basis unless a formal election to vary or cease participation is provided by 3 March 2020.

The shares issued under the DRP are fully paid ordinary shares and rank equally with other fully paid ordinary shares. The issue price under the DRP is calculated as the volume weighted average price of all shares sold through normal trade on the ASX during the five trading days commencing on the third trading day after the record date, less the 2.5% discount.

5. Income Tax Expense
	Half Year	Half Year
	December	December
	2019	2018
	$'000	$'000
Profit before tax	8,481	7,766
Prima facie income tax at 30%	2,544	2,330
Tax effect of amounts which are not deductible/(taxable) in
calculating taxable income:
Tax rate differences in overseas entities	(32)	(115)
Share of net loss of joint ventures	294	-
Share-based payments expense	115	32
New Zealand tax losses not recognised	95	-
Over provision in prior periods	(281)	(59)
Other	21	42
Income tax expense	2,756	2,230

Appendix 4D - Page 18

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

6. Intangible Assets
	31 December 2019	30 June 2019
	$'000	$'000
Goodwill	15,764	15,757
Brand names	56,827	56,827
Other intangibles	7,984	8,439
Accumulated amortisation	(6,896)	(7,050)
Total other intangibles	1,088	1,389
Total intangibles	73,679	73,973

Reconciliations

Reconciliations of the carrying amounts of each class of intangible assets at the beginning and end of the half year are set out below:

		Brand	Other
	Goodwill	names	intangibles	Total
	$'000	$'000	$'000	$'000
Carrying amount at 1 July 2019	15,757	56,827	1,389	73,973
Additions	-	-	29	29
Amortisation charge	-	-	(332)	(332)
Foreign currency exchange differences	7	-	2	9
Carrying amount at 31 December 2019	15,764	56,827	1,088	73,679

Acquired brand names are not amortised under AASB 138 Intangible Assets, as Directors consider these to have an indefinite life. These brand names are subject to an impairment test.

Impairment testing

Goodwill

Goodwill is allocated to the following cash generating unit:

	31 December 2019	30 June 2019
	$'000	$'000
Australia	15,764	15,757

Appendix 4D - Page 19

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

6. Intangible Assets (continued)

The recoverable amount of a cash generating unit is determined based on a value-in-use calculation. These calculations use cash flow projections based on financial budgets and forecasts covering a one year period. Cash flows beyond the projected period are extrapolated using estimated growth rates. In performing the value-in-use calculations for each cash generating unit, the Group has applied a post-tax discount rate to discount the forecast future attributable post-tax cash flows.

The assumptions used in the value-in-use calculations, for all cash generating units, are set out below:

		31 December 2019			30 June 2019
	Estimated Growth	Terminal	Post-Tax	Pre-Tax	Estimated	Terminal	Post-Tax	Pre-Tax
	Rates Year 2	Discount	Discount	Growth Rates	Discount	Discount
	Growth Rate	Growth Rate
	Onwards	Rate	Rate	Year 2 Onwards	Rate	Rate
Australia	2.0%	2.0%	10.0%	13.7%	2.0%	2.0%	10.0%	13.7%

In addition to the above, it is noted that the year one cash flow projection is a key assumption within the value-in- use calculation. The cash flow projection used for the year one cash flows are based on the Board approved financial forecasts. The forecasts reflect the Board's expectation of cash flows for the Australian CGU arising from profit optimisation initiatives, new product launches and the inventory rationalisation project.

Impact of possible changes in key assumptions

The value-in-use calculation is sensitive to changes in the key assumptions used in the impairment testing. As such, a sensitivity analysis was undertaken by management to examine the effect of changes in key assumptions which would cause the carrying amount to exceed the recoverable amount for the Australian CGU. Management is satisfied that any reasonably likely changes in the key assumptions would not cause the carrying value of the Australian CGU to materially exceed its recoverable amount.

Brand names

Brand names are tested for impairment on an individual basis annually and more frequently if events or changes in circumstances indicate that they might be impaired. The recoverable amount of a brand name is determined based on the higher of value-in-use or fair value less costs to sell calculations.

The value-in-use calculations are prepared using a discounted cash flow analysis of the future net contribution expected to be generated by the brand, which is based on financial budgets and forecasts covering a one year period. Cash flows beyond the projected period are extrapolated using estimated growth rates. In performing the value-in-use calculations the Group has applied a post-tax discount rate to discount the forecast future attributable post-tax cash flows.

The assumptions used in the value-in-use calculations are set out below.

	31 December 2019			30 June 2019
Estimated Growth	Terminal	Post-Tax	Pre-Tax	Estimated	Terminal	Post-Tax	Pre-Tax
Rates Year 2	Discount	Discount	Growth Rates	Discount	Discount
Growth Rate	Growth Rate
Onwards	Rate	Rate	Year 2 Onwards	Rate	Rate
1.0% - 15%	1.0%-3.0%	10.0%	13.7%	1.0% - 15%	1.0%-3.0%	10.0%	13.7%

Impact of possible changes in key assumptions

If the year one projected sales by brand were 10.0% below the current estimates used in the value-in-use calculations, a brand name impairment charge of $4,396,000 would arise.

If the year one contribution margin percentages were 2.0% below the current estimates used in the value-in-use calculations, a brand name impairment charge of $2,010,000 would arise.

If the terminal year growth rates used in the value-in-use calculations were to be 1.0% lower than management's estimates, a brand name impairment charge of $905,000 would arise.

Appendix 4D - Page 20

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

7. Borrowings
	31 December 2019	30 June 2019
	$'000	$'000
Current
Bank loans - secured	24,500	1,667
Lease liabilities	4,284	-
Debt issue costs	(36)
Total current	28,748	1,667
Non-Current
Bank loan - secured	-	16,333
Lease liabilities	5,658	-
Debt issue costs	-	(64)
Total non-current borrowings	5,658	16,269
Total borrowings	34,406	17,936

The Group's facility is denominated in Australian dollars and is expiring on 31 August 2020.

The facility limit is $45,900,000 (2019: $46,900,000). Drawings under this facility are required to be backed by eligible trade debtor and inventory assets.

As at 31 December 2019, the Group was compliant with its debt covenants.

Under the terms of the borrowing facilities, the Group is required to comply with the following key financial covenants:

• The total leverage ratio must not exceed 2.25 times on the secured bank facility;
• The Debt Service cover ratio must not be less than 3.50 times; and
• Total Shareholder funds must not be less than $65,000,000.

Appendix 4D - Page 21

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

7. Borrowings (continued)

Maturity profile of the Group's borrowings

The table below analyses the Group's borrowings into relevant maturity groupings based on the remaining period at balance date to the contractual maturity date. The amounts disclosed are the contractual undiscounted cash flows.

				Less than	Between	Between	Between	Total		Carrying
				1 Year	1 & 2	2 & 3	4 & 6	Contractual	Amount
				$'000	Years	Years	Years	Cash Flows	$'000
					$'000	$'000	$'000	$'000
	31 December 2019
	Payables	37,466	-	-	-		37,466	37,466
	Borrowings	24,800	-	-	-		24,800	24,500
	Total non-derivative
	62,266	-	-	-		62,266	61,966
	financial liabilities
	30 June 2019
	Payables	32,219	-	-	-		32,219	32,220
	Borrowings	2,053	16,397	-	-		18,450	17,936
	Total non-derivative
	34,272	16,397	-	-		50,669	50,156
	financial liabilities
8. Contributed Equity
									31 December 2019	30 June 2019
											$'000		$'000
	Issued and paid up capital:
	106,843,303 (June 2019: 106,329,245) fully paid ordinary shares				158,810		157,751
Movements in ordinary share capital
									Number of	Share
	Date	Details					Price	$'000
					Shares
										$
	1 July 2019	Opening balance			106,329,245			157,751
	31 July 2019	Employee Shares			120,771		1.76	213
	26 September 2019	Dividend Reinvestment Plan		391,541		2.19	857
	23 October 2019	Employee Shares						1,746		2.36	4
		Transactions costs associated with shares issued				(21)
		Tax effect of share issue	transaction	costs				6
		recognised directly in equity
	31 December 2019	Closing Balance			106,843,303			158,810

Appendix 4D - Page 22

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

9. Earnings Per Share
	Half Year	Half Year
	December 2019	December 2018
	Cents	Cents
Basic earnings per share	5.4	5.3
Diluted earnings per share	5.4	5.3

Weighted average number of shares used as the denominator

Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share

Adjustments for calculation of diluted earnings per share:

Commencement rights granted to the Managing Director

Shares estimated to be issued under employee share scheme are dilutive and therefore are included in the calculation of diluted earnings per share

Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share

10. Investment in joint ventures

(a) Formation of the My Kart joint venture (Soulful)

Half Year	Half Year
December 2019	December 2018
Number of shares	Number of shares
106,637,116	104,918,748

263,000224,412

1,803111,324

106,901,919105,254,484

On 23 July 2019, the Group announced the acquisition of 51% interest in the joint venture My Kart Pty Ltd from privately owned Australian companies The Beetle Co Pty Ltd, Sandybanks Marketing Pty Ltd and Sodor Investments Pty Ltd ("Soulful shareholders"). The Group's investment for this holding comprised the following:

• $0.5 million equity in My Kart;
• $0.5 million shareholder loan to My Kart; and
• $0.2 million working capital loan to My Kart.

My Kart is a consumer goods business based on adult and student milk formulas, pre-packaged dried and organic foods, and digestive related tonics and bars trading under the "Soulful" brand.

Under the terms of the agreement, the parties entered into the following transactions:

• Earn out payable by the Group, based on a normalised EBIT multiple of My Kart for the financial years ending 30 June 2020, 2021 and 2022. The Group recognised on acquisition date an earn out liability of $2.0 million.
• The Group has the option to call, after 30 June 2024, the 49% interest in My Kart owned by the Soulful shareholders; and
  The Soulful shareholders has the option to put its 49% interest in My Kart to the Group after 30 June 2024.

Appendix 4D - Page 23

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

10. Investment in joint ventures (continued)

1. Formation of the Dr. LeWinn's China Limited joint venture

On 11 November 2019, the Group announced a joint venture with Access Brand Management (ABM) in order to expand sales of Dr. LeWinn's branded products in Greater China, and to jointly develop new brands and products for the Greater China market.

Under the terms of the joint venture agreement:

1. • The Group and ABM hold respectively 49% and 51% of the HK$100 issued share capital of the joint venture, incorporated in Hong Kong;
   • MCP and ABM will execute an Exclusive Distribution Agreement for the Dr. LeWinn's brand in Greater
     China until 30 June 2022;
   • ABM commits to increase its purchases of Dr. LeWinn's products by a minimum compound annual growth rate of 5% for the financial years ended 30 June 2020, 2021 and 2022; and
   • If ABM does not achieve a target of $35 million in annual purchases of Dr. LeWinn's products from McPherson's in any year prior to 30 June 2022, or aggregate purchases of Dr. LeWinn's products from
     McPherson's of $82.5 million over the three-year period ended 30 June 2022, then the Group may elect to acquire the trademarks of the joint venture for a value agreed with ABM.
2. Interest in joint ventures

The following tables summarise financial information of the equity accounted investees as at 31 December 2019.

Name of entity	Country of	% of ownership	Nature of	Measurement	Quoted fair	Investment
	incorporation	interest	relationship	method	value	carrying
					$'000	amount
						$'000

Kotia Limited	New Zealand	51	Joint venture	Equity method
Sugarbaby & Co Pty Ltd	Australia	51	Joint venture	Equity method
My Kart Pty Ltd	Australia	51	Joint venture	Equity method
Dr. LeWinn's China Limited	Hong Kong	49	Joint venture	Equity method

-*	71
-*	-
-*	2,419
-*	75

Total	2,565

*Private entity - no quoted price available

The new ventures (My Kart Pty Ltd and Dr. LeWinn's China Limited) are deemed to represent a joint venture on the basis that the unanimous consent of both shareholders is required for several key decisions.

Consequently, the Group does not consolidate the results of these joint ventures, rather it equity-accounts for its share of the joint ventures' profit or loss and movements in other comprehensive income.

Any dividends received from the joint ventures in future periods will be recognised as dividend income and a reduction in the carrying amount of the Group's investment in this entity.

Appendix 4D - Page 24

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

10. Investment in joint ventures (continued)
(c) Interest in joint ventures (continued)
Movements in carrying amount of equity accounted	31 December 2019	30 June 2019
investments	$'000	$'000
Opening balance	716	-
Acquisition of investment in joint ventures	2,648	1,195
Share of joint ventures' net profit / (loss)	(939)	(479)
Share of joint ventures' loss recognised against receivable	140	-
balances
Dividends	-	-
Carrying amount of equity accounted investments	2,565	716
Share of joint ventures' statement of financial position	31 December 2019	30 June 2019
		$'000	$'000
Current assets	807	843
Non-current assets	5,652	2,795
Total assets	6,459	3,638
Current liabilities	(3,028)	(1,963)
Non-current liabilities	(838)	(833)
Total liabilities	(3,866)	(2,796)
Net assets	2,593	842

(d) Loan receivable from joint ventures

The following table summarises financial information in relation to the Group's loans to the joint ventures as at

31 December 2019:

	Name of entity		Loans from the	Carrying	Interest	Term
			Group	amount	per
				$'000	annum
	Kotia Limited		Shareholder	2,125	6%	The loan is not expected to be repaid within 12 months
		loan
	Sugarbaby & Co Pty Ltd		Shareholder	60	5%	The loan is not expected to be repaid within 12 months
		loan
			Shareholder	469	6%	The loan is not expected to be repaid within 12 months
			loan
	My Kart Pty Ltd
		Working capital	113	-	The loan is not expected to be repaid within 12 months
			loan
	Share of net loss exceeding
	carrying value of investment in			(70)
	joint venture
	Total			2,697

The purpose of these loans is to fund the working capital requirements of the joint ventures.

Appendix 4D - Page 25

Appendix 4D

McPherson's Limited

Notes to the Consolidated Financial Statements

For the half year ended 31 December 2019

12. Contingent Liabilities

From time to time, the Group is subject to claims and litigations during the normal course of business. The Board has given consideration to such matters, which are or may be subject to litigation at year end and, is of the opinion that no material liability exists other than specifically provided in these financial statements.

13. Subsequent Events

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.

Appendix 4D - Page 26

Appendix 4D

McPherson's Limited and Controlled Entities

Directors' Declaration

In the Directors' opinion:

1. the financial statements and notes set out on pages 5 to 26 are in accordance with the Corporations Act
   2001, including:
2. 1. complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
   2. giving a true and fair view of the consolidated entity's financial position as at 31 December 2019 and of its performance for the half year ended on that date; and
3. there are reasonable grounds to believe that McPherson's Limited will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the Directors.

G. A. Cubbin	L. McAllister
Chairman	Managing Director
19 February 2020	19 February 2020

Appendix 4D - Page 27